Rand, markets wait on the Fed

By Staff Writer

By Renée Bonorchis

THE rand held its ground yesterday, clinging to nine-month lows against the dollar as the oil price stayed high and interest rate changes were expected.

“Increasingly it seems that with the sharp first-quarter sell-off and with the high and improving carry, the rand will continue to surge as long as international conditions remain positive,” said John Cairns, currency specialist at RMB.

But he said there were some potential upsets. The US Federal Reserve will decide tomorrow on interest rates. A 25 basis point cut is widely expected.

“They could potentially signal a pause in the cutting cycle, which, if nothing else, would detract from the rand because it would strengthen the dollar. More important is US employment data on Friday; everyone expects that the US will keep shedding jobs, but exactly how bad will it be?” Cairns asked.

With uncertainty looming, he said international markets were trading cautiously ahead of this week’s events “and with oil hitting a new high of close to $120 a barrel and the euro versus the dollar still trading with a downside bias, it once again seems as if the rand should consolidate some of its gains”.

Brent crude oil — the kind SA imports — touched highs of $116,74 a barrel yesterday, but came off a little in the afternoon despite the Organisation of Petroleum Exporting Countries (Opec) having said oil could trend all the way to $200.

Some sources said the oil price dropped because BP had got one of its North Sea oil pipelines running again after a two-day shut down, thereby easing supply concerns. In the background, as many companies reported a drop in profit, Royal Dutch Shell reported a 25% rise in first-quarter earnings, saying the vast rise in energy prices had contributed to its $9bn profit.

But as the oil price moderated slightly yesterday afternoon, other commodities also fell back — gold, platinum, palladium and related metals all fell as the dollar firmed ahead of the Fed’s impending decision.

Moody’s Investors Service released a report yesterday saying global demand for base metals had remained solid, providing price support above expectations to date. “Global demand is expected to soften in the second half of 2008. Prices will simultaneously moderate, but remain above historical averages,” Moody’s said.

Ernie Gruhn, analyst at Imara SP Reid, said the overall trend for bullion remained positive although some further weakness on the gold board was likely. While platinum counters had come under pressure of late, they were slightly oversold, suggesting support should emerge.

As far as oil goes, Gruhn said the price for Brent was now within a range of resistance and Imara SP Reid expected a pullback towards $108 in the next 10 to 12 trading days. But the overall trend continued to be positive for the oil price.

The JSE all share showed a moderate contraction for most of the day yesterday, with falling gold stocks the main reason for the decline. Domestic bond yields continued to be weak.

Annabel Bishop, economist at Investec, said data releases in SA today could affect the market less than usual because this is only a two-day week.

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