Johannesburg – The rand bounced back in early trade on Monday‚ on news that the European Union agreed to lend Spanish banks €1bn‚ which eased the negative global sentiment on the eurozone debt crisis.
The news from Europe‚ together with positive data from China at the weekend‚ painted a picture of a gradual stabilisation of the world economy‚ which had a positive impact on emerging markets.
At 08:38 the rand was bid at R8.2652 to the dollar from Friday’s close of R8.3147. It was bid at R10.4397 to the euro from its previous close of R10.5058 on Friday and at R12.8507 against sterling from R12.9228 at its previous close. The euro was bid at $1.2640 from Friday’s close of $1.2636.
“We opened higher‚ it’s all positive in the short term‚” a local trader said. “The markets are reacting to the €100bn loan to the Spanish banks but it’s difficult to say what will happen. It all depends on how markets will digest news from Europe.”
European authorities agreed to support Spain’s request for financial assistance to recapitalise its banks. A loan‚ estimated at €100bn‚ will be provided by the European Financial Stability Facility and the European Stability Mechanism. The actual size of the loan will be determined after an external private audit is completed on June 21.
Standard Bank said in its morning report that although the news of the Spanish bank bail-out and the better-than-expected Chinese trade data had boosted risk sentiment‚ the Greek elections‚ scheduled for this weekend (June 17)‚ were likely to drive the market’s moves this week.
“The recent volatility in sentiment‚ reflected in the rand‚ is likely to remain a feature of this week’s trade — especially in light of a relatively uneventful event and data slate this week‚” the bank said.
Dow Jones reports that the euro rose against the dollar and yen in Asia on Monday after the EU agreed to bail out Spain’s banks‚ but dealers said the gains were unlikely to last as the move was not a comprehensive solution to the region’s debt problems.
Spanish Finance Minister Luis de Guindos said on Saturday that the EU would grant Spain a loan of up to €100bn that the government will funnel to banks that need capital.
Markets welcomed the deal‚ with regional stock markets higher and the euro gaining against most of its rivals. As of 02:50 GMT‚ the common currency was at $1.2635 from $1.2517 late on Friday in New York. Against the yen‚ it was at Y100.59 from Y99.50.
“With the EUR100bn agreement‚ we may have avoided an immediate deterioration in the crisis‚ but the flash points are still there‚” said Hirotsugu Inoue‚ head of FX sales at UBS in Tokyo.
Looking ahead‚ investors will pay attention to an election in Greece this weekend.
Junya Tanase‚ JP Morgan’s chief Tokyo currency strategist‚ said there was a more than 70% chance that Greece would remain in the eurozone regardless of the election outcome.
“It’s very unlikely that Greece will exit the eurozone suddenly‚ which suggests we may see a bit more short-covering from the recent risk-off sentiment‚” he said.
The greenback was at Y79.63 from Y75.92 late on Friday.
The ICE Dollar Index‚ which tracks the US dollar against a basket of currencies‚ was at about 81.851 from 82.442.
