Bloomberg News

Rand Advances to Week-High as Euro Pledge Buoys Risk Assets

October 10, 2011

Oct. 10 (Bloomberg) -- The rand appreciated to its strongest level in more than a week against the dollar as a new pledge to stem Europe’s debt crisis and signs of a recovery in the U.S. economy spurred demand for riskier assets.

The South African currency climbed as much as 2.1 percent to 7.8344 per dollar, the highest since Sept. 29. It traded 1.8 percent higher at 7.8576 by 3:48 p.m. in Johannesburg. Against the euro, the rand slipped 0.1 percent to 10.7015.

German Chancellor Angela Merkel and French President Nicolas Sarkozy will deliver a plan to recapitalize European banks and address the Greek debt crisis by the Nov. 3 Group of 20 summit. Goldman Sachs Group Inc. and Macroeconomic Advisers LLC raised their U.S. growth forecasts in the third quarter, after an Oct. 7 report showing a 103,000 advance in payrolls. The Standard & Poor’s GSCI index of raw materials and South Africa’s benchmark stock index advanced for a fourth day.

“The pendulum seems to have swung back in favor of improved sentiment,” Tradition Analytics strategists led by Johannesburg-based Quinten Bertenshaw wrote in e-mailed comments. “A steady rotation away from safe-haven assets should see risk assets benefit.”

Foreign investors were net buyers of 1.65 billion rand ($210 million) of South African stocks and bonds last week, after selling 4.79 billion of securities the week before, according to JSE Ltd. data.

The rand may advance to 7.73 per dollar after breaching 7.90, the Tradition analysts wrote.

Bonds Rally

Bonds gained for a fifth day on speculation the stronger rand will reduce inflationary pressures, giving the central bank more room to cut interest rates. The yield on the 6.75 percent securities due 2021 dropped 11 basis points, or 0.11 percentage point, to 8.01 percent, the lowest since Sept. 16.

“Any firm recovery in the rand would dilute any expectation of a strong rise in inflation and trigger a rethink on the outlook for rates,” Tradition wrote. “Interest rates, inflation and growth could remain a lot softer than the market has priced in,” spurring demand for longer-term debt, they added.

--Editors: Ana Monteiro, Alex Nicholson

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


Best LBO Ever
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus