June 21 (Bloomberg) -- The rand strengthened, heading for the strongest in more than a week against the dollar on optimism a solution to the Greek crisis will be found, boosting investor appetite for riskier emerging-market assets.
South Africa’s currency appreciated as much as 0.5 percent to 6.7469 per dollar and traded 0.3 percent stronger at 6.7581 by 3:57 p.m. in Johannesburg. It declined 0.3 percent to 9.7265 versus the euro.
Emerging-market stocks and commodity prices snapped four days of declines after Luxembourg’s Jean-Claude Juncker said yesterday Greek Prime Minister George Papandreou assured him the government would do everything to ensure financial aid before a confidence vote. South Africa’s benchmark stock index rallied as much as 1 percent.
“The rand remains completely at the mercy of the euro- dollar and today’s Greek parliament vote of confidence,” John Cairns and Nema Ramkhelawan, currency strategists at Rand Merchant Bank, said in a research note. “If, as expected, the cabinet is approved, then both risky assets and the euro would be boosted, sending the dollar lower” versus the rand.
The rand often moves in tandem with the euro, showing a statistical correlation of 0.82 over the past month. A value of 1 would mean they moved in lock step. The eurozone accounts for 45 percent of South Africa’s exports and 34 percent of its imports, according to South African Revenue Service data.
The rand maintained its advance after the nation’s current- account deficit widened more than economists’ expectations in the first quarter. The shortfall in the current account expanded to 3.1 percent of gross domestic product, the Reserve Bank said in Pretoria. The median estimate of 17 analysts in a Bloomberg survey was for a deficit of 2.8 percent.
“Expect the focus to rest with movements in the euro- dollar and developments in Greece,” Tradition Analytics researchers led by Johannesburg-based Quinten Bertenshaw said in a research note before the current-account data was released. “The domestic data will only be market-moving should they deviate significantly from consensus.”
Bonds gained, driving yields to the lowest level in a week, on speculation the central bank won’t raise interest rates in 2011 as it strives to aid a recovery in Africa’s biggest economy.
The 6.75 percent debt due 2021 climbed 46 cents to 89.30 rand, driving the yield eight basis points, or 0.08 percentage point, down to 8.37 percent, the lowest since June 13.
While the South African Reserve Bank predicts that inflation will breach its 3 percent to 6 percent target range in the first quarter of 2012, it has kept the key interest rate at 5.5 percent this year. The bank won’t raise interest rates to curb rising prices caused by global oil and food prices, Chief Economist Monde Mnyande said today.
“Local growth prospects remain clouded by considerable downside risks,” Nedbank analysts led by Dennis Dykes said in a research note. “The Monetary Policy Committee will probably remain reluctant to tighten monetary policy too quickly or aggressively as higher interest rates will do little to contain inflation but will hurt the economy and job creation.”
Nedbank expects the first interest-rate increase in the first quarter of 2012, even after today’s current account data.
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