Goldman Sachs hits rand

The rand is under pressure in noon trade amid a rise in global risk aversion owing to several factors that have caused investors to seek refuge in the dollar and the yen.

One of the major factors sending jitters through global markets is the fraud charge faced by that Goldman Sachs Group Inc.

On Friday the Dow fell sharply on news that the U.S. Securities and Exchange Commission, in a civil suit, accused Goldman Sachs of "defrauding investors by misstating and omitting key facts about a financial product tied to subprime mortgages as the U.S. housing market was beginning to falter."

The news was a major blow to financial stocks and the Dow ended over 1% lower on Friday.

At 12.00 the rand was bid at 7.4585 to the dollar from 7.3859 at its previous close. It was bid at 10.0219 to the euro from its previous close of 9.9799 and was at 11.3398 against the sterling from 11.3047.

The euro was bid at US$1.3435 from US$1.3489 previously.

All eyes on the Euro

A local trader said all eyes are on the weaker euro and global stock markets.

"If the Goldman story continues, then the fallout will affect the Dow, emerging markets and the rand.

"But if it all calms down then 7.50 should be the high for the rand and then we should start to drift back. So all eyes will be on the stock markets and particularly the Dow tonight," he said.

RMB analysts said in their morning report that the mood towards the rand seems to be turning and last week's continued losses seems to have encouraged the view that the trend is now for ongoing weakness.

However, they are not convinced. "By definition, the speculation that another rate cut will hurt the ZAR will fade. After all, it was the strong ZAR which encouraged talk of a cut in the first place. International markets will admittedly remain on the back-foot today as the implications of Goldman Sachs being charged with fraud filters through. This story may grow legs given a very empty data calendar in the first part of the week," they said.

"Risk-taking nevertheless is ultimately based on the global economic recovery and as we stated last week the outlook here is increasingly positive - although double-dip risks remain. On this front, we expect the IMF to upgrade its 2010 global economic forecast at this weekend's meeting. The volcano eruption in Iceland that is disrupting European air travel should only marginally constrain the EU recovery," they said.

They say the rand could hit 7.50 as early as today and perhaps 7.60 by mid-week, "but we suspect the market will drift back lower again towards end-week," they said.

Dow Jones Newswires reported that Goldman Sachs Group Inc.'s fraud charge by the Securities and Exchange Commission, worries over the economic impact of European airport closures and suggestions that any Greek bailout will be far from swift are undermining global market sentiment and leaving the dollar and the yen higher in Europe Monday.

Once again, the euro has come under selling pressure as investors have retreated from risk-taking and sent global equity markets lower.