S.Africa's Rand Opens Steady; Shrugs off Gold, euro

Posted 12 June 2006 @ 12:24 pm EET     Print     Reprint     E-Mail     Comments

JOHANNESBURG (Reuters) - South Africa's rand opened steady on Monday after clawing back lost ground late last week, with traders predicting the unit would range-trade near-term, heartened by strength in other commodity-linked currencies.

At 0700 GMT the rand was trading at 6.70/dollar -- 5 cents firmer than its close in New York on Friday, but barely budged from its levels in Johannesburg during the session.

Its stability flew in the face of a weaker gold price and euro, which traditionally help set direction for the currency as South Africa is the world's main gold producer while Europe is its main trade partner.

"We are decoupling a bit from gold and the euro -- also the Canadian and Australian dollar are stronger," a dealer said.

"We will probably continue to find a new range and could go to the mid to low 60's, but will struggle to get below 6.55/dollar. Broadly, the rand will stay between 60 and 80."

Last week the currency plumbed an 11-month low at 6.84/dollar, but managed to recover after the central bank unexpectedly raised its repo rate by half a percentage point to 7.50 percent to fight mounting inflation pressures.

Dealers in Johannesburg cited foreign research notes in favour of the rand as another reason for its comeback.

UBS said on Friday technical charts showed the rand was ripe for a correction back to 6.57 or 6.47 to the dollar. A break below 6.6973 would reinforce the outlook, it said.

A dramatic recovery in the domestic bourse was seen as major support for the rand, with the Johannesburg Top-40 index of blue-chip stocks marching 5.6 percent higher on Friday to 17,526.61 points, after dropping almost 7 percent on Thursday.

Big selloffs in domestic equities weaken the rand as they generally mean foreigners will dump the local currency and convert the proceeds into foreign exchange.

Bond yields were steady after firming in line with the rand, bolstered as well by the view that last week's rate hike may not signal the start of a prolonged tightening cycle.

Yields on the most-traded R153 bond due 2010 were unmoved at 7.88 percent, while yields on the benchmark R157 due 2015 were up one basis point at 8.05/dollar.