S.Africa's rand hits 3-year high against dollar

Thu Dec 30, 2010 7:00am GMT

JOHANNESBURG (Reuters) - South Africa's rand advanced to a fresh three-year high against the dollar on Thursday and is poised for further gains in a thin market dominated by exporters.

The rand climbed to 6.5975, its strongest since November 2007, and could target the 6.40's in the next few weeks, especially if it stays below 6.65.

By 0644 GMT it was trading at 6.6060, 0.36 percent stronger than Wednesday's New York close of 6.63.

"We expect the rand to strengthen further," said a dealer at a local bank, seeing the rand between 6.58 and 6.65 in the session.

"The market is looking to sell dollars on rallies around the 6.67/68 area. With the way the rand has strengthened, as an exporter you a worried but importers are happy to sit out," he added.

The rand has firmed by over 30 percent to the dollar since beginning of last year. In response, the central bank has increased its reserves in an effort to offset the gains.

Peter Attard Montalto, emerging market analyst at Nomura International said the central bank "could have put up a much better fight" in the past few sessions to counter rand appreciation.

While a stronger rand will keep inflation in check, it will weigh on exports and the broader economy and support the case for another rate cut.

Rates have already fallen by 650 basis points since December 2008 and expectations of another rate cut are boosting the bond market.   Continued...

<p>A South African child holds a 50 rand note July 2. JN/FMS</p>
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UK £ USD =1.2926
Euro USD =1.0900
Rand USD =0.0750