Rand Advances to Two-Week High to Dollar as Stocks, Metals Rally

Aug. 29 (Bloomberg) -- The rand advanced to its strongest in almost two weeks against the dollar after Federal Reserve Chairman Ben S. Bernanke said the U.S. economy is recovering, fueling demand for riskier, emerging-market assets.

The rand appreciated for a third day, increasing as much as 1.5 percent to 7.0443 per dollar, its highest level since Aug. 16. It traded 1.3 percent up at 7.0568 as of 3:17 p.m. in Johannesburg, bringing its advance since Aug. 24 to 2.6 percent.

Emerging-market stocks rose for a second day, driving the benchmark index toward the highest level in more than a week, after Bernanke said the Fed has tools to spur growth. Prices on the London Metal Exchange climbed for a fourth day, boosting demand for shares in South Africa’s mining companies. The nation’s stocks gauge surged as much as 2.8 percent, led by miners including Anglo American Plc and BHP Billiton Ltd.

“Risky assets recouped some lost ground due to the belief that the Fed has kept the door open for more monetary stimulus,” Standard Bank Group Ltd. analysts led by Johannesburg-based Michael Keenan wrote in a research note. “The rand can recover further.”

The rand may extend its advance to 6.96 per dollar after breaching 7.06, a so-called resistance level where traders clustered orders to sell the currency, the Standard Bank analysts said. The likelihood of the rand trading at 6.96 versus the dollar in the next week was 58 percent, implied volatility from options monitored by Bloomberg showed when the rand traded at 7.05 per dollar.

Bonds gained for a second day before reports tomorrow on second-quarter gross domestic product growth, July private sector credit and the government’s budget shortfall in July.

Economic Data

The 6.75 percent securities due 2021 climbed 15 cents to 93.301 rand, driving the yield down two basis points, or 0.02 percentage point, to 7.75 percent.

Growth in Africa’s biggest economy slowed to 1.6 percent in the three months through June, from 4.8 percent in the previous quarter, according to the median estimate of 18 economists in a Bloomberg survey. Private sector credit growth likely slowed to 4.9 percent, from 5.3 percent.

Investors are increasing bets the central bank will cut its key interest rate, now at 5.5 percent, as the slowing global economy drags down growth in South Africa. Three-month forward- rate agreements starting in December, used to lock in future borrowing costs, retreated for a second day, losing less than one basis point to 5.34 percent. Reserve Bank Governor Gill Marcus said on Aug. 23 the central bank will act “appropriately” if there is a sustained slowdown in the world growth.

The Reserve Bank may need to cut its outlook for growth from 3.7 percent this year unless the global growth improves, Deputy Governor Lesetja Kganyago said on Aug. 26.

“The risk of monetary easing by the Reserve Bank will be the dominant factor” driving bond market gains, Rand Merchant Bank analysts led by Theuns de Wet said in a research note. The yield on the 2021 bonds may fall to 7.40 percent, they wrote.

--Editors: Ana Monteiro, Stephen Kirkland

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