Bloomberg News

Rand Surges to 4 1/2-Month High After U.S. Jobless Rate Drops

February 03, 2012

Feb. 3 (Bloomberg) -- The rand surged to a 4 1/2-month high against the dollar, set for a fourth weekly gain, after the U.S. jobless rate unexpectedly dropped to the lowest in three years, boosting demand for riskier assets.

South Africa’s currency appreciated as much as 1.4 percent to 7.5425 per dollar, the strongest level since Sept. 19. It traded 0.9 percent firmer at 7.5760 as of 3:52 p.m. in Johannesburg, bringing its advance this week to 2.2 percent. Against the euro, it gained 1 percent to 9.9437.

A gauge of emerging-market stocks rose for a fourth day and South Africa’s benchmark stock index reversed a decline after a Labor Department report showed unemployment in the U.S. dropped to 8.3 percent in January, the lowest since February 2009. The 243,000 increase in payrolls was the most since April and exceeded all forecasts in a Bloomberg News survey.

“It was a much better number than anyone expected,” Nomvuyo Guma, a currency strategist at Standard Bank Group Ltd. in Johannesburg, said by phone. “It added to the risk-on sentiment in the market.”

Earlier, the rand strengthened on speculation South Africa’s central bank will leave its benchmark lending rate unchanged this year, maintaining the currency’s yield advantage over the dollar and euro.

The Federal Reserve signaled last month it will leave interest rates low through 2014 and may embark on a third round of asset purchases, while the European Central Bank cut its benchmark rate twice last year to 1 percent, fueling demand for higher-yielding assets, including South African bonds.

Foreign investors bought a net 7 billion rand ($919 million) of South African bonds since Jan. 19, when the central bank left its repo rate at 5.5 percent, maintaining the rand’s yield advantage over the dollar and euro.

‘Firmer Rand’

“Expect inflows to local bonds to persist in months ahead, as the global search for yield becomes entrenched,” George Glynos, an analyst at ETM Analytics in Johannesburg, said in e- mailed comments. “The bias for now remains in favour of a firmer rand.”

The rand has returned 6.7 percent this year for investors who borrow dollars to invest in higher-yielding currencies, known as the carry trade, according to data compiled by Bloomberg.

South Africa’s 6.75 percent bonds due 2021 gained, driving the yield down one basis point, or 0.01 percentage point, to 7.64 percent.

--Editors: Peter Branton, Ash Kumar

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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