The rand followed the euro weaker in early trade on Wednesday as the growing prospect of a Greek exit from the eurozone sent investors scurrying out of the 17-member currency.
The rand had started to follow the single currency weaker yesterday and that was continuing this morning.
“The euro is the main driver in the market as key support levels have been broken. Volumes are reasonable and we have seen good two way flows,” a local trader said.
At 08:30 local time the rand was bid at R8.3778 to the dollar from Tuesday's close of 8.3275 and Monday's close of R8.1983. Just a week ago the rand was below R8 per dollar.
It was bid at R10.6299 to the euro from R10.5955 before, and at R13.3608 against sterling from R13.3041 previously.
The euro was bid at US$1.2690 from Tuesday's close of $1.2732 and Monday's close of $1.2828.
RMB said the formal announcement that Greece will hold new elections sent global markets weaker yesterday and losses have continued into today.
“The euro dollar pair remains the benchmark for the rand dollar pair: the break below $1.2800 on the euro yesterday generated R8.30 per dollar and this morning's test of $1.2700 is now pushing the rand to R8.36 per dollar. The break isn't coming easily so we could be in for a repeat of yesterday: consolidation with vicious swings in small ranges but susceptible to sharp losses from negative news,” the bank said.
“It would be brave to go against the trend but it's easy to make the case that the rand is now well oversold. As we noted yesterday, the rand's traditional indicators such as the VIX volatility index and global funding stresses are worsening but do not suggest that we're in a global crisis. And the traditional safe haven yen hasn't been affected.
“Foreign investors are also not panicking. Since the Greek elections a week ago, we've seen net foreign buying of our local assets. And while our compatriot currencies are also being sold, none of them have been hurt quite as badly as the rand. If there is a major worry, it's that Spanish and Italian bond yields are coming under pressure - Spain at 6.4% and Italy above 6% but are well off the worst levels seen last year when Italy hit 7.5%,” RMB added.
Dow Jones Newswires reported that the euro extended losses on Wednesday as worries over Greek political turmoil continued to weigh on the single currency, while the dollar benefited from global risk aversion.
Greek politicians officially called for new elections after political party leaders failed to reach an agreement to form a coalition government following an inconclusive election on May 6. But it remains uncertain whether Greece will be able to form a new government after fresh elections in June, fueling speculation that the country may not get badly needed international aid and will eventually be forced out of the currency bloc.
The European Central Bank (ECB) is increasingly refusing requests for liquidity from Greek banks, making them dependent on support from the Greek central bank, Dutch financial daily het Financieele Dagblad reports Wednesday, citing “sources in Brussels.”
At the end of January, Greek banks had received EUR73 billion in liquidity support from the ECB, but this amount has dropped by more than 50% now, according to the newspaper. The ECB is cutting back support because Greece has been holding off on recapitalizing its banking system, despite receiving EUR25 billion in funds for that purpose, the paper says. - I-Net Bridge