Bloomberg News

Rand Top Forecaster Sees Gain as Higher Rates Lure Investors

November 16, 2011

(Updates prices in sixth paragraph.)

Nov. 16 (Bloomberg) -- The rand, the worst-performing major currency this year, is set to gain as higher interest rates lure investors seeking riskier assets amid an easing in Europe’s debt crisis, according to Commerzbank AG, the top-ranked forecaster for the South African currency.

The currency may advance as much as 6.5 percent against the dollar by the end of December, paring a 17 percent slump this year, said Thu Lan Nguyen, a currency strategist at Commerzbank. The Frankfurt-based lender, the most accurate among 21 forecasters in a study by Bloomberg Rankings since April 2010, expects the rand to trade at 7.65 per dollar by year-end, and to extend gains to 7.30 by the end of 2012.

The rand has led declines among major and emerging-market currencies as investors sold higher-yielding assets on concern Europe’s debt crisis will cause funding problems for banks. European leaders plan to double the region’s 440 billion-euro ($604 billion) bailout fund to protect bigger economies such as Italy from contagion spawned by Greece’s debt crisis. Should they make progress by year-end, the rand could benefit, Nguyen said.

“If you see a recovery in risk appetite, and that is our base-case scenario, the rand is one of the currencies with the most appreciation potential,” she said in a Nov. 9 interview.

JPMorgan Chase & Co., the second-most accurate forecaster, expects the rand to strengthen to 7 per dollar by year-end before weakening in 2012 to end the year at 7.45. The currency is seen at 7.80 per dollar by the end of this quarter, according to the median estimate of 23 analysts in a Bloomberg survey.

Italy, Greece

The rand weakened 0.3 percent to 8.1980 per dollar as of 7:38 a.m. in Johannesburg, headed for its lowest close in almost four weeks.

Mario Monti, a former European Union competition commissioner, was appointed as Italy’s new prime minister, boosting confidence in the country’s ability to cut the euro region’s second-biggest debt. In Greece, finance minister Evangelos Venizelos said his priority is to ensure the country gets a sixth loan under an EU-led bailout after Prime Minister Lucas Papademos took charge of an interim government.

The rand returned 1.4 percent this quarter for investors who borrow dollars at low interest rates and invest in higher- yielding currencies, known as the carry trade, according to Bloomberg data. Carry-trade returns may spur demand for the currency as developed-nation interest rates stay low, Nguyen said.

“The carry trade is an important factor,” Nguyen said. “The rand is a high-yielding currency after all, and one of the most prominent ones.”

Rate Increase

South Africa’s central bank left its benchmark interest rate at 5.5 percent last week, even as inflation is estimated to breach the upper limit of the 3 percent to 6 percent target range this year. That compares with a rate of 1.25 percent in the euro region, 0.25 percent in the U.S. and 0.1 percent in Japan.

Investors are increasing bets on a central bank rate increase in the next year, which would widen the rand’s interest-rate advantage. Forward-rate agreements starting in 12 months, which investors use to lock in borrowing costs, surged 29 basis points yesterday to 5.83 percent, the highest in three months.

Non-deliverable forward contracts, which provide a guide to investors’ expectations of currency moves, show the rand at 8.26 per dollar by the year-end. Calculations based on options contracts monitored by Bloomberg show a 53 percent chance that the rand will trade at 7.65 per dollar this quarter.

--With assistance from Wei Lu in New York, Stephen Gunnion in Johannesburg. Editors: Peter Branton, Ana Monteiro

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


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