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S.Africa rand pauses as investors eye budget
Tue Feb 14, 2006 5:16 PM GMT
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JOHANNESBURG (Reuters) - South Africa's rand tread water on Tuesday ahead of Finance Minister Trevor Manuel's budget speech, which is expected to yield corporate tax breaks and a further relaxation in exchange controls.

At 1440 GMT it was trading at 6.1750/dollar, marginally softer from its U.S. close on Monday.

"The rand is marking time ahead of the budget, 6.14-6.19 is a range. I expect it to stay in that range overnight and see what happens with the budget tomorrow," said one domestic dealer.

Manuel is due to unveil the 2006/7 budget review on Wednesday and economists say revenue overruns may give him room to provide tax relief to businesses, especially the small and medium enterprises seen as key to job creation.

Economists also expect the government to raise or eliminate a 750,000 rand cap on the amount of money which its citizens can take offshore, following the end of an amnesty for people who illegally took money out of the country years ago.

The market will also keep an ear out for Manuel's views on the rand after Deputy President Phumzile Mlambo-Ngcuka said last week its strength was hobbling economic growth, which the government has said is vital for cutting widespread poverty.

The rand enjoyed three years of gains versus the greenback, cutting into profits of the key export-based manufacturing and mining sectors, before yielding some ground in 2005.

So far this year, the rand has appreciated by over 2 percent against the dollar, boosted by a booming economy and general optimism surrounding emerging markets.

The euro -- the unit of South Africa's biggest trade partner -- pared early gains against the dollar, holding close to this week's six-week low after data showed German economic growth unexpectedly stagnated in the final months of 2005.

It changed hands around $1.1868, compared to $1.1903 at its New York close on Monday.

A series of other statistics also hampered the currency -- euro zone growth halved in the final three months of 2005, while a closely watched German ZEW survey showed investor sentiment fell unexpectedly in February.

Investors are now shifting focus to Federal Reserve Chairman Ben Bernanke's appearance before the U.S. Congress on Wednesday and Thursday in the hope his testimony will yield clues about how much higher U.S. interest rates will climb.

Domestic government bonds firmed slightly.

The yield on the most traded R153 bond due 2010 eased 4.5 basis points to 7.19 percent, while the yield on the R157 bond due 2015 dipped by 5.5 basis points to 7.285 percent.