Bloomberg News

Rand Gains to Week-High on Recovery Signs, European Debt Plan

October 24, 2011

Oct. 24 (Bloomberg) -- The rand advanced to its strongest level in a week as commodity prices rallied amid signs the global economy is recovering and Europe’s leaders moved closer to a plan to contain the region’s debt crisis.

The rand appreciated 1.1 percent to 7.9532 per dollar as of 4:17 p.m. in Johannesburg, after climbing as much as 1.7 percent to 7.9007 per dollar in earlier trade, the strongest since Oct. 17. Against the euro, South Africa’s currency gained 1.5 percent to 11.0228.

Reports showed China’s manufacturing may grow in October for the first time in four months and Japanese exports increased more than expected in September. European leaders outlined plans to aid banks and ruled out tapping the European Central Bank’s balance sheet to boost the region’s rescue fund yesterday in their 13th crisis-management summit in 21 months.

“Equity markets are up and growth-sensitive commodity prices have increased,” John Cairns and Nema Ramkhelawan-Bhana, currency strategists at Rand Merchant Bank in Johannesburg, said in a research note. “This positive sentiment towards risky assets should provide some support to the rand.”

Copper rose a second day in New York as industrial metals extended the biggest rally in two years, and platinum and gold, which account for a fifth of South Africa’s export earnings, rose for a second day. South Africa’s benchmark stock index climbed to its highest in almost three months, led by raw materials export companies including Anglo American Plc and BHP Billiton Ltd.

South African Bonds

South African bonds declined before Finance Minister Pravin Gordhan’s mid-term budget speech tomorrow, with the yield on 13.5 percent notes due 2015 climbing three basis points, or 0.03 percentage point, to 6.733 percent.

Gordhan may increase his forecast for the fiscal gap to 5.4 percent of gross domestic product in the year beginning April 1 from 4.8 percent estimated in his February budget, according to the median estimate of seven economists surveyed by Bloomberg.

A wider budget gap will require more borrowing, raising the supply of bonds in the market and pushing yields higher even as economic growth slows, said Ian Cruickshanks, head of treasury strategic research at Johannesburg-based Nedbank Capital, a unit of South Africa’s fourth-biggest bank.

“We know that revenue is below budget, spending may go up, and so the budget deficit will widen and the borrowing requirement will be higher,” Cruickshanks said. “There has to be a bit of pressure on bond rates.”

--Editors: Linda Shen, Ana Monteiro

To contact the reporter on this story: Robert Brand in Cape Town at rbrand9@bloomberg.net 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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