South Africa’s rand had its biggest one-day decline in more than a week as a technical indicator measuring the currency’s momentum suggested its advance to a five-month high this week had gone too far, too fast.
A stochastic oscillator for the rand versus the dollar was 20.7 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 during a particular period, dropped below 30 yesterday for the first time since Feb. 16.
“In the very near-term, we remain reluctant to continue selling dollars and believe that the market remains ripe for a correction,” George Glynos, an economist at Johannesburg-based ETM Analytics, wrote in e-mailed comments today.
South Africa’s currency depreciated as much as 1.1 percent to 7.5230 per dollar and traded at 7.5084 as of 4:28 p.m. in Johannesburg. The decline pared its gains this week versus the dollar to 1.4 percent. The rand reached 7.4025 against the U.S. currency on Feb. 29, the strongest level since Sept. 19, as the European Central Bank’s injection of liquidity into the region’s banks boosted appetite for higher-yielding assets.
Foreign investors have been net buyers of 4 billion rand ($535 million) of South African stocks and bonds this year, according to the JSE Ltd., operator of the nation’s bourses. The rand fell 0.5 percent to 9.9535 per euro, snapping a six-day rally against the 17-nation currency.
The ECB said on Feb. 29 it will lend 529.5 billion euros ($702.7 billion) to financial institutions, more than the predicted allotment of 470 billion. The loans helped ease concerns about funding pressures and provided liquidity for investment in riskier assets.
“Markets may well be realizing that after this round of liquidity, believed to be the last, the problems in the euro zone remain,” Nomvuyo Guma, a Johannesburg-based currency strategist at Standard Bank Group Ltd., said in e-mailed comments.
The Standard & Poor’s GSCI Spot Index (SPGSCI) of 24 raw materials slipped as much as 0.7 percent today, its first decline in three days, as appetite for riskier assets waned. South Africa has the world’s biggest reserves of platinum, manganese and chromium, according to government data. Raw materials including metals account for 65 percent of the nation’s exports.
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