Rand dips under R7/$

Johannesburg - The rand dipped under R7.00 against the dollar in midday trade on Wednesday, hitting levels last recorded in mid January 2008, amid a very weak dollar, and better than expected local retail data, according to a local dealer.

At 11:51 local time the rand was bid at R6.9704 to the dollar from R7.0533 at the previous close. It was bid at R9.3471 to the euro from R9.3496 before and at R10.9382 against sterling from R11.0065 at its previous close.

The euro was bid at $1.3378 from $1.3253 overnight.

A trader said: "Rand strength is basically being driven by the weakness of the dollar following comments from the FOMC on Tuesday. While the Fed didn't mention quantitive easing measures directly, it did everything else but." The dealer noted better than expected local retail data also helped boost the rand below R7.00 against the dollar.

South African retail trade sales at constant (2008) prices for July increased 7.9% year-on-year (y/y) after a revised 7.6% (7.4%) growth in June, figures released on Wednesday by Statistics South Africa showed.

A survey of leading economists by I-Net Bridge had expected retail trade sales to decrease to 6.9% y/y.

Forecasts among the ten economists ranged from 5.3% to 7.9%.

Measured in real terms (constant 2008 prices), seasonally adjusted retail trade sales rose 0.5% in July 2010 compared with June 2010. This followed month-on-month changes of 2.0% in June 2010 and 0.7% in May 2010.

One other dealer noted that a "very good number" from South Africa's current account would also have helped rand strength.

South Africa's current account deficit narrowed to -2.5% of GDP from -4.6% in the first quarter, the second quarter Quarterly Bulletin of the South African Reserve Bank (Sarb) released on Wednesday showed.

The better than expected deficit came on the back of an improved performance of the trade account, which recorded a R13.2bn surplus from the R12.9bn deficit in the first quarter.

Dow Jones Newswires reports that the dollar remained under pressure on Wednesday after the US Federal Reserve surprised financial markets with dovish comments on Tuesday.

The euro was one of the main beneficiaries of the dollar's weakness but with Asian and European stock markets all posting losses, and with investors still nervous about eurozone bond auctions, the single currency's are proving limited.

The Fed's admission that inflation has now fallen below comfort levels, indicating that deflation is now a risk for the US economy, as well as the suggestion that it remains open to further quantitative easing, initially sent the dollar sharply lower.

Analysts said that this would increase speculation of the introduction of so-called QEII at the bank's next policy meeting in November.

The continued uncertainty over the next US policy move failed to lift sentiment in equity markets, with most Asian and European stock indexes posting losses on Wednesday.

This apparent lack of appetite for risky assets helped to dampen support for the euro ahead of Portugal's bond auction.

Euro sentiment wasn't helped by the latest eurozone industrial new orders, which fell by 2.4% in July. This was much more than 1.6% decline forecast and was a sharp reversal of June's 2.4% rise.
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