Bloomberg News

Rand Gains First Day in Three as Europe Bets Boost Risk Appetite

October 19, 2011

Oct. 19 (Bloomberg) -- The rand strengthened against the dollar for the first day in three after reports that France and Germany are nearing a deal to boost Europe’s rescue fund whet investor appetite for riskier, emerging-market assets.

The currency of Africa’s biggest economy appreciated as much as 0.7 percent to 7.9390 per dollar and traded up 0.1 percent at 7.9920 as of 2:26 p.m. Johannesburg time.

The rand’s advance tracked gains in emerging-market stocks and commodity prices after the London-based Guardian newspaper reported that Germany and France had agreed to boost the region’s rescue fund to 2 trillion euros ($2.8 trillion) before a summit this weekend. The rand maintained gains as South African inflation accelerated in August and retail-sales growth beat economists’ estimates, damping expectations of an interest- rate cut that would erode the nation’s yield advantage.

“The worst of the current crisis is behind us and short of some calamitous events out of Europe, the probability is high that risk aversion subsides slightly,” Tradition Analytics strategists led by Quinten Bertenshaw wrote in e-mailed comments.

Consumer inflation accelerated an annual 5.7 percent in September from 5.3 percent in August, Pretoria-based Statistics South Africa said on its website today. The median estimate of 19 economists was for inflation to quicken to 5.6 percent. Retail sales rose 7.1 percent from a year earlier, more than the revised 3 percent growth in July and beating the 5.2 percent median estimate in a Bloomberg survey of 14 economists.

Rate-Cut Chances

The central bank, which aims to keep inflation between 3 and 6 percent, will “act appropriately” in the event of a significant slowdown in global growth, Governor Gill Marcus said on Sept. 22. The bank has kept its benchmark rate at a 35-year low of 5.5 percent since November.

“The higher inflation number means the chance of an interest-rate cut is put off, maybe indefinitely, and that makes the rand more attractive,” Ian Cruickshanks, head of treasury strategic research at Johannesburg-based Nedbank Capital, a unit of South Africa’s fourth-biggest bank, said by phone.

Forward-rate agreements starting after the next MPC meeting in November rose three basis points, or 0.03 percentage point, to 5.51 percent today. The rate has climbed 10 basis points in the past week as investors pared rate cut bets.

South Africa’s 6.75 percent bonds due 2021 gained for the first day in three, pushing the yield down seven basis points to 8.101 percent.

--With assistance from Stephen Gunnion in Johannesburg. Editors: Ana Monteiro, 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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