South Africa's rand scaled a new peak
JOHANNESBURG (Reuters) - South Africa's rand scaled a new 2-1/2 month peak against the dollar on Thursday, lifted by broad greenback weakness and the central bank's decision to keep rates unchanged -- creating scope for a test of 6.28/dollar.
The rand firmed by five cents to 6.34 per dollar shortly after the rate verdict -- its strongest level since May 19, according to Reuters data.
"It's a combination of the rate decision and a weaker dollar, which is pushing the euro and the gold price up, helping commodity currencies," said one trader.
South Africa's central bank kept its key repo rate steady at 7.0 percent, as expected, saying it would be "inappropriate" to change interest rates now despite the positive inflation outlook. It cited high global oil prices as the main threat.
Nineteen out of 20 economists polled last week predicted the South African Reserve Bank (SARB) would keep its key repo rate unchanged, but given that the central bank has previously surprised with interest rate cuts, some traders had anticipated a loosening of monetary policy.
An interest rate cut would have further narrowed the yield gap between South Africa and the United States, which has been gradually tightening monetary policy.
The SARB has reduced interest rates by 6.50 percentage points between June 2003 and April 2005 as inflation subsided, driving prime lending rates to 24-year lows.
The rand was trading at around 6.3430 the dollar by 1430 GMT compared to 6.38 at close in New York on Wednesday.
It has trimmed its losses against the dollar so far this year to about 11 percent and analysts saw scope for a test of 6.28/dollar in the short-term.
"We are seeing dollar weakness. We are seeing the gold price pushing up a bit. The currency does look like it is going a little bit stronger," said Jacques Potgieter, an analyst at Sanlam Securities.
"I think there is a chance that we could go down (firmer) to the 6.28/dollar on a technical level."
The greenback extended its losses after a softer than expected retail sales report, which left intact the market's expectations for more measured U.S. interest rate hikes.
The euro traded around $1.2437 according to Reuters data, up from around $1.2405 shortly before the U.S. data and up about 0.4 percent from levels late on Wednesday in New York.
South African government bond yields rose amid disappointment that the central bank had not trimmed rates.
"There was a bit a of expectation that they might cut rates, so there is a bit of disappointment there," said Nyiko Mageza, an analyst at banking group Absa.
The yield on the most-traded R194 bond due 2008 was up 8 basis points at 7.25 percent. The yield on the benchmark R153 bond due 2010 was up 4 basis points at 7.52 percent.