Bloomberg News

Rand Gains as Improving Risk Appetite Boosts Metals, Equities

January 23, 2012

Jan. 23 (Bloomberg) -- The rand gained against the dollar as commodities rallied and South African stocks rose to a record on optimism Greece will come to an agreement with private bondholders, boosting demand for riskier assets.

South Africa’s currency appreciated 0.5 percent to 7.9134 per dollar as of 3:23 p.m. in Johannesburg, extending a 2.2 percent rally last week. Against the euro, it declined 0.2 percent to 10.3080 today.

European Union finance ministers meet in Brussels today to discuss new budget rules and a Greek debt swap. Greece and private bondholders said they made progress in talks in Athens. The Standard & Poor’s GSCI Index of 24 commodities gained as metals advanced. South Africa’s benchmark stock index climbed for a sixth day to a record, led by metal producers including Anglo American Plc and BHP Billiton Ltd. Raw materials account for 60 percent of South Africa’s export earnings.

“The rand’s bullish trend seems intact as the mood is still risk-on,” Nomvuyo Guma, a currency strategist at Standard Bank Group Ltd. in Johannesburg, said in e-mailed comments. “Commodities, in particular, remain firm.”

Speculators raised bets on higher metal prices by the most since July, turning bullish on copper for the first time in four months on signs of growth in the U.S., increasing demand in China and more confidence in Europe.

Interest Rates

South Africa’s currency advanced last week after the central bank left its benchmark repurchase rate unchanged at 5.5 percent, maintaining the rand’s yield advantage over the dollar and euro. Governor Gill Marcus said the monetary policy committee did not discuss a rate cut at its meeting, which ended on Jan. 19.

The rand is set to return 5.7 percent to investors borrowing in dollars and investing in the South African currency, according to calculations based on currency forecasts and current market rates.

“Event risk during the week is relatively high but the trend for rand gains remains very much intact,” John Cairns, a currency strategist at Rand Merchant Bank in Johannesburg, said in e-mailed comments. “We remain convinced that the rand will keep strengthening.”

Still, a stochastic oscillator for the rand versus the dollar was 15.8 today, below the 30 threshold that signals the currency may have appreciated too fast and is poised for a decline. The measure, which tracks the price of a security relative to its highs and lows over a particular period, has been below 30 since Jan. 9.

“Technically, one could argue that the dollar-rand is oversold and the rand is now due a phase of consolidation,” George Glynos, an economist at Johannesburg-based ETM Analytics, wrote in e-mail comments. “In the very near-term, this may well unfold.”

South Africa’s 13.5 percent bonds due 2015 gained for the first time in three days, driving the yield down three basis points, or 0.03 percentage point, to 6.68 percent.

--Editors: Peter Branton, 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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