Bloomberg News

Rand Leads Emerging-Market Rally as Commodity Prices Rebound

October 05, 2011

Oct. 5 (Bloomberg) -- The rand strengthened the most in a week, leading gains among more than 20 emerging-market currencies as commodities rebounded from their lowest level in 10 months on reports policy makers may help recapitalize banks.

The currency of Africa’s biggest economy appreciated as much as 2.6 percent to 8.0206 per dollar, its biggest gain since Sept. 27, and traded 2.4 percent stronger at 8.0371 at 4 p.m. in Johannesburg. The Standard & Poor’s GSCI Spot Index rose the first day in four, rebounding from the weakest level in 10 months.

European Union finance ministers are discussing ways of coordinating recapitalizations of banks, the Financial Times reported, while Belgian Prime Minister Yves Leterme said a “bad bank” will be set up to hold the troubled assets of Dexia SA, the French and Belgian lender threatened by its exposure to Greek debt.

Combined action by the European Central Bank and the European Financial Stability Facility to remove fears of Greek debt contagion would further improve the outlook for emerging market currencies, Tradition Analytics strategists led by Johannesburg-based Quinten Bertenshaw wrote in a note.

“Any commitment by the ECB to potentially re-enter the market to purchase bonds and boost money supply would be a green light for a rand recovery,” Bertenshaw said. “That recovery would gain momentum on some positive news on Greece.”

‘Close to Faltering’

Signs that the euro area’s debt crisis is hampering growth have prompted speculation the ECB will lower borrowing costs tomorrow. Eleven of 52 economists surveyed by Bloomberg said it will cut its benchmark interest rate by at least a quarter- percentage point from the current rate of 1.5 percent at its Oct. 6 policy meeting. The others expect no change.

U.S. Federal Reserve Chairman Ben S. Bernanke said the U.S. central bank can take further steps to sustain a recovery that’s “close to faltering.” Bernanke said yesterday in testimony to Congress’s Joint Economic Committee that the Fed is “prepared to take further action as appropriate” after using unconventional tools to boost growth in August and September.

South African government bonds gained for a second day on expectations for increased demand as the prospect of further quantitative easing in the U.S. is likely to raise liquidity, analysts led by Ian Cruickshanks, head of treasury strategic research at Johannesburg-based Nedbank Capital, a unit of South Africa’s fourth-biggest bank, wrote in a report.

The 6.75 percent securities due 2021 climbed 49 cents to 90.44 rand, driving the yield down 7.9 basis points to 8.221 percent.

--Editors: Ana Monteiro, Gavin Serkin

To contact the reporter on this story: Stephen Gunnion in Johannesburg at sgunnion@bloomberg.net

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


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