Bloomberg News

Rand Gains First Day in Four as Merkel Calms Default Concerns

September 13, 2011

Sept. 13 (Bloomberg) -- The rand snapped three days of declines, rebounding from the weakest level in more than a month, after German Chancellor Angela Merkel said she’s confident Europe can solve Greece’s debt problems.

The currency of Africa’s biggest economy advanced as much as 1.8 percent to 7.3222 per dollar and traded 1.2 percent stronger at 7.3651 at 3:26 p.m. in Johannesburg. Against the euro, the rand climbed 0.8 percent to 10.0641 per euro.

Merkel said she won’t let Greece go into an “uncontrolled insolvency” because of the risk of contagion for other countries. Italian officials have held talks in the past few weeks with Chinese counterparts about potential investments in the country, an Italian government official said yesterday, helping ease concern that the region’s debt crisis will worsen. South Africa’s benchmark stock index rose for the first day in three as commodity prices rallied.

Merkel’s statement “certainly helped” support the rand, 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 hanging onto any thread. There is some hope they’ll pull a rabbit out of the hat.”

The rand will likely trade in a range between 7.30 and 7.50 per dollar in coming days, and may weaken to 7.90 per dollar by the end of the year after breaching 7.30, a significant support level where traders clustered orders to buy the currency yesterday, Cruickshanks said.

Euro Rate

Rand purchases by South Africa exporters helped drive the rand’s recovery today, Cruickshanks said. Exporters benefit from a weaker rand when they convert their dollar earnings into local currency.

“Exporters can’t stay permanently uncovered,” he said. “They need rand to keep the wheels of their businesses turning, and at these levels some of them were saying, ‘Let’s sell those dollars’.”

The euro, the currency that pays for 45 percent of South Africa’s exports, erased a decline versus the dollar, helping support the rand. South Africa’s currency often trades in tandem with the euro, with a statistical correlation of 0.69 over the past month. A value of 1 would mean they moved in lock step.

The news out of Europe “has seen sentiment turn mildly positive,” Tradition Analytics strategists led by Johannesburg- based Quinten Bertenshaw wrote in a research note today. “Whether such improvement in investment sentiment will be sustained is up for debate, but for now, it has helped put the brakes on further persistent dollar strength.”

The rand maintained its advance after the central bank reported South Africa’s current-account deficit widened to 3.3 percent of gross domestic product in the second quarter, less than the 3.4 percent median estimate of 13 economists polled by Bloomberg. The shortfall was 3.1 percent in the first quarter.

--Editors: Ana Monteiro, Vernon Wessels

To contact the reporter on this story: Chris Kay in London at ckay5@bloomberg.net

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


Tim Cook's Reboot
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus