Bloomberg News

Rand Gains to 4-Week High as U.S. Slowdown Boosts Carry Trade

June 06, 2011

June 6 (Bloomberg) -- The rand advanced to a four-week high against the dollar as evidence of an economic slowdown in the U.S. and prospects of an aid package for Greece boosted investor demand for South Africa’s higher-yielding assets.

The rand appreciated as much as 0.6 percent to 6.6759 per dollar, the strongest level since May 6. It traded 0.5 percent up at 6.6921 by 10:13 a.m. in Johannesburg, a fifth day of gains. The currency added 0.4 percent to 9.7888 per euro.

The euro touched a month-high against the dollar after EU and International Monetary Fund officials agreed to pay the next installment to Greece under last year’s bailout, paving the way for an upgraded aid package that includes a “voluntary” role for investors. A report tomorrow is forecast to show U.S. economic optimism fell this month. U.S. payrolls grew at the slowest pace in eight months and the jobless rate climbed to 9.1 percent in May, data showed June 3.

“While sentiment towards Greece and the eurozone continues to improve, the euro will benefit especially against the likes of the U.S., where the data looks awful,” Tradition Analytics researchers led by Johannesburg-based Quinten Bertenshaw said in a research note. “The bias while this remains the case will be for the rand to appreciate further against the dollar.”

The rand often moves in tandem with the euro, the currency of most of South Africa’s trade.

An index of U.S. economic optimism slipped to 42.0 this month from 42.8 in May, according to the median estimate of four economists in a Bloomberg News survey before Investors Business Daily and TechnoMetrica Market Intelligence reports the data tomorrow.

Carry Trade

U.S. Labor Department data on June 3 showed U.S. payroll growth declined to 54,000 new jobs in May from a revised 232,000 in April, backing the case for the Federal Reserve to keep interest rates near zero. The benchmark central bank interest rate in South Africa is 5.5 percent.

The rand has returned 3.9 percent in the past week in the dollar carry trade, in which investors borrow in dollars at near-zero interest rates and invest the proceeds in high- yielding rand assets, according to data compiled by Bloomberg.

Bonds gained, driving yields to the lowest in almost five months, on speculation the stronger rand will slow price increases, reducing pressure on the central bank to lift interest rates this year.

Bond Move

“There is no doubt that if the rand manages to stage a stronger recovery, especially against the dollar, that investors will need to revise downwards their expectations of inflation and therefore interest rates,” the Tradition analysts said. “The bias appears to be in favor of further bond market gains at this point.”

The 13.5 percent notes due 2015 climbed 31 cents to 121.91 rand, driving the yield down eight basis points, or 0.08 percentage point, to 7.40 percent, the lowest since Jan. 12. The 6.75 percent securities due 2021 rose 45 cents to 90.29 rand, lowering the yield seven basis points to 8.21 percent.

Foreign investors were net buyers of 2.4 billion rand ($358.2 million) of South African bonds last week, boosting flows into the country’s debt this year to 23 billion rand, according to JSE Ltd. data.

--Editors: Ana Monteiro, Linda Shen

To contact the reporter on this story: Robert Brand in Cape Town at rbrand9@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net


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