Rand a tad softer; eyes PPI data

The rand was weaker than its levels seen late yesterday, with all eyes on local producer inflation data later. Analysts noted that an elevated PPI reading could lead to further rand weakness.

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The rand was weaker than its levels seen late yesterday local time in early trade on Thursday, with all eyes on local producer inflation data later. Analysts noted that an elevated PPI reading could lead to further rand weakness.

At 08:40 local time, the rand was bid at 7.2570 to the dollar from its previous close of 7.2625. It was bid at 10.4624 to the euro from 10.4580 before, and at 11.8746 against sterling from 11.8779 previously.

The euro was at US$1.4430 from US$1.4411 before.

Standard Bank analysts said in their morning report that the rand weakened yesterday despite reduced global risk aversion. Safe-haven assets pared more of their recent gains yesterday, global equity markets enjoyed an extended relief rally and volatility levels declined due to encouraging US retail sales data and ongoing hopes that this week's Jackson Hole Central Bankers' meeting will result in more monetary stimulus being injected into the financial system, and in so doing get the global economic recovery back on track.

“Hence, yesterday's weaker rand seems to have been a function of yesterday's higher than expected local CPI inflation print, which may have dashed some of the growing optimism of another SARB rate cut that has fuelled the demand for SA bonds in recent weeks,” they said.

Standard Bank remains of the opinion that the SARB will refrain from lowering its lending rates again due to mounting inflationary pressures, especially since cost-push pressures have now translated into higher inflation expectations - as evidenced by the elevated wage demands associated with the country's prevailing strike activity.

“Thus, if this morning's local PPI inflation also overshoots market consensus then we could see an extended uptick in SA bond yields and if non-residents also trim some of their existing bond positions then the rand could weaken towards our R7.33 target,” they wrote

SA's producer price index (PPI) is expected to have increased at 7.9% year on year (y/y) in July from the 7.4% y/y seen in June, a survey by I-Net Bridge has found. Forecasts among nine leading economists surveyed ranged from 7.2% y/y to 8.5% y/y.

Meanwhile Dow Jones Newswires reported that the dollar gained slightly on its counterparts in Asia Thursday, supported by growing speculation that Federal Reserve Chairman Ben Bernanke likely won't pledge any additional monetary easing in a speech at the central bank's gathering in Jackson Hole Friday.

Some observers say the fact that Bernanke has not said anything to encourage the view that he will signal further action highlights the unlikelihood of such a move. A Wall Street Journal report said Bernanke's aides have also been quiet on the subject.

“This makes sense when you consider that in its meeting just a few weeks ago the Federal Open Market Committee already said it will keep short-term interest rates around zero for the next two years,” said Satoshi Tate, a senior dealer at Mizuho Corporate Bank. “It's unlikely Bernanke would go beyond this now.”

The absence of any additional monetary easing steps, which would weigh on interest rates, would be positive for the dollar ahead, dealers and analysts said.

The euro could suffer as a consequence, some said.

The common currency has failed to bounce back to the recent high of $1.4500 it touched Tuesday. That means “it's important to suppose there's still the risk of it falling” even more sharply ahead, said Junichi Ishikawa, FX analyst at IG Markets Securities. It could drop to around $1.4250 in coming sessions, he said. - I-Net Bridge

Source: http://www.iol.co.za/rand-a-tad-softer-eyes-ppi-data-1.1124841

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