Bloomberg News

Rand Gains 1st Day in Four as U.S. Service Industry Expands

September 06, 2011

Sept. 6 (Bloomberg) -- The rand strengthened for the first time in four days against the dollar, erasing earlier losses, after a report showed an unexpected increase in U.S. service industries, easing concern the American economy is slumping.

South Africa’s currency gained 0.2 percent to 7.1213 versus the dollar at 4:24 p.m. in Johannesburg, after earlier declining as much as 0.4 percent to 7.1635.

The Institute for Supply Management’s index of non- manufacturing businesses increased to 53.3 last month from 52.7 in July. Economists forecast the gauge would drop to 51, according to the median estimate in a Bloomberg News survey. A reading above 50 signals expansion. A pickup among the non- manufacturing industries that account for about 90 percent of the economy shows the recovery may persist amid dimming job prospects and rising pessimism about the economic outlook.

The ISM data “could have been worse, but it wasn’t,” Ian Cruickshanks, head of treasury strategic research at Johannesburg-based Nedbank Capital, a unit of South Africa’s fourth-biggest bank, said by phone. “The market is looking for anything to say, let’s straighten out a bit. In the ultra-short term, that” boosted the rand, he added.

The rand strengthened 0.5 percent stronger at 10.0186 against the euro. European stocks declined for a third day before Finance ministers from Germany, Finland and the Netherlands are scheduled to meet today to discuss a Finnish demand for collateral in a bailout for Greece. Italy’s Senate is set to debate an austerity plan amid a strike called by the nation’s biggest union. Gross domestic product in the euro area expanded 0.2 percent in the second quarter, the European Union’s statistics office reported today.

‘Underlying Weakness’

“The underlying weakness in the euro zone is manifesting itself in euro weakness, driving the rand” stronger, John Cairns and Nema Ramkhelawan-Bhana, currency strategists at Rand Merchant Bank in Johannesburg, said in a research note.

The rand was buoyed by foreign-investor purchases of the nation’s debt, which helped drive 10-year yields to the lowest level since January 2009. Bond purchases by offshore investors have offset net equity outflows, helping to bolster the rand even as concern Europe’s debt crisis will worsen sapped demand for riskier, emerging-market assets.

“The market is still being supported by offshore interest,” Brigid Taylor, head of institutional sales at Nedbank Capital, said by phone from Johannesburg. “We’re not seeing aggressive buying today, but there haven’t been massive risk-off outflows either. That’s why the rand is remaining stable.”

Bond Yields

Global funds have bought a net 53.8 billion rand ($7.6 billion) of South African bonds this year, even as they sold a net 7.53 billion rand of shares, according to JSE Ltd. data on Bloomberg.

The extra yield investors receive for holding South African 10-year bonds rather than U.S. Treasuries dropped four basis points to 5.56 percentage points today. The spread was 5.83 percentage points on Aug. 12, the widest this year.

The 6.75 percent securities due 2021 climbed 69 cents to 94.884 rand, driving the yield down 11 basis points to 7.508 percent, the lowest on a closing basis since Jan. 5, 2009.

“Foreigners have held firm in their local long bond positions through the recent risk aversion,” Tradition Analytics strategists led by Johannesburg-based Quinten Bertenshaw wrote in a research note. “Local bonds are expected to remain firm.”

--Editors: Stephen Kirkland, 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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