Bloomberg News

Rand Gains as Spanish Debt Auction, German Confidence Boost Euro

December 20, 2011

Dec. 20 (Bloomberg) -- The rand appreciated the most in a week against the dollar, tracking the euro’s gain, after Spain’s borrowing costs dropped and German business confidence unexpectedly rose for a second month.

South Africa’s currency strengthened as much as 2.1 percent, a fourth day of gains, before paring its rise to 2 percent at 8.2257 as of 4:44 p.m. in Johannesburg. The euro edged up 0.8 percent versus the dollar to 1.3122, its biggest jump this month.

Spain sold 5.64 billion euros ($7.36 billion) of bills, more than the maximum target, and its borrowing costs dropped as the European Central Bank prepared to start offering banks unlimited three-year loans later today. The Ifo institute’s business climate index, based on a survey of 7,000 executives, rose to 107.2 from 106.6 in November, the Munich-based institute said today. Economists expected a drop to 106, the median forecast of 36 economists in a Bloomberg News survey showed. The euro area is South Africa’s largest trading partner.

“I am seeing some positive signs emerging from Europe and as long as bond yields continue dropping we could see more recovery for emerging market currencies,” George Glynos, an economist at Johannesburg-based ETM Analytics, said by phone. “Generally speaking, the dollar is due a correction.”

The rand has declined 19 percent this year, the worst performer out of more than 20 emerging-market currencies tracked by Bloomberg.

Risks Remain

While the rand is proving “more resilient” than it might have been in the past, it will “struggle to rally back to levels more in line with South African fundamentals whilst a major credit crunch is unfolding abroad,” Glynos wrote in e- mailed comments today.

ECB President Mario Draghi said yesterday substantial risks to the economy remain and the law forbids him from increasing government bond purchases to fight the crisis.

South Africa’s 13.5 percent bonds due 2015 advanced for a fourth day, driving the yield 2.2 basis points, or 0.022 percentage point lower to 6.888 percent.

--Editors: Ash Kumar, Gavin Serkin

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

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


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