Rand steady

The rand was steady against the dollar in early morning trade on Thursday as it tracked a euro that had remained stable in Asian trade.

“It's also important to note that the rand is strengthening against the euro - but slowly,” a local currency trader said.

“We're all waiting for the European Central Bank meeting and things like the Spanish bond auction - there's a lot to look at today.”

“Dollar rand is very much in a range but if the euro can stabilise further, then we could break a bit lower. For now, I put dollar rand in a range of 8.02 to 8.14.”

The trader said that while local manufacturing data could have some impact on the rand, it was unlikely to be a “dramatic” one.

At 08:40 local time, the rand was bid at R8.0849 to the dollar from its previous close of R8.0826. It was bid at R10.2700 to the euro from R10.2821 before, and at R12.3815 against sterling from R12.3907 previously.

The euro was bid at US$1.2709 from its previous close of US$1.2721.

RMB said in a morning note that it expected to see rand gains on a multi-day/week horizon, “but we are probably in for the first volatile day of the year today.”

RMS said the key event of the day would be the European Central Bank meeting.

“Consensus is for no rate cut. The markets want to gather from the press conference whether the next cut will be in February or March or even at all, whether the bond purchase programme will re-accelerate and whether they plan further liquidity injections.

“There are expectations that the ECB will take a time-out to see how things evolve after doing so much at the end of last year. A lot rides on the Spanish debt auction, given the huge focus on debt rollovers.”

No change in policy was expected from the Bank of England. Meanwhile, there was a lot of key data from Europe in the morning, including industrial production figures, RMB added.

Barclays Capital said in a note that the rand could come under pressure if today's local manufacturing data failed to improve on the prior reading. Statistics SA was expected to release the data at 13:00 local time.

Meanwhile Dow Jones Newswires reported that the euro remained stable versus the dollar and the yen on Thursday in Asia ahead of the closely-watched European Central Bank meeting and Spanish bond and Italian treasury bill auctions later in the global day.

The ECB was likely to stand pat this time, allowing the market to further digest two rate cuts in as many months and a bonfire of various unconventional policy measures taken recently.

Still, investors were likely to scrutinise President Mario Draghi's remarks at a press conference for any signal that the ECB was ready to cut rates or embark on more aggressive sovereign bond buying, Tokyo dealers said.

“It's hard to imagine he will hint at an expansion of sovereign bond purchases as he put cold water on such market expectations last month,” said Tomohiro Nishida, senior dealer at Chuo Mitsui Trust and Banking. “The focus would be whether he sees the economy worsening or implies further potential rate cuts.”

Many economists expected the ECB to cut interest rates further in coming months.

“The euro will likely continue to be top-heavy given the dim economic outlook and speculation for rate cuts in addition to the euro-zone's structural weakness,” Nishida said.

Still, massive market positions betting for a further decline in the common currency meant sharp, temporary position-covering could come at any time, Tokyo dealers said.

Meanwhile, a meeting between Japan Finance Minister Jun Azumi and US Treasury Secretary Timothy Geithner was largely shrugged off by the market. Azumi said that he shared Geithner's view on foreign exchange, but declined to disclose details of their discussions.

The euro was likely to continue to decline amid renewed concerns over European sovereign debt problems after the Spanish and Italian auctions, said Sumino Kamei, senior analyst at Bank of Tokyo-Mitsubishi UFJ in Tokyo said.

“Even if the auctions go smoothly, it's hard to see it becoming a turning-point of the recent euro weakening trend, when the countermeasures to tackle European sovereign debt problems are being taken with difficulty,” she said. - I-Net Bridge