Bloomberg News

Rand Gains on German Confidence, Europe Bailout Speculation

March 26, 2012

The rand advanced, reversing an earlier decline, after German business confidence unexpectedly rose and on speculation the European Union will increase the size of its bailout fund, boosting demand for riskier assets.

South Africa’s currency gained as much as 0.4 percent and traded 0.3 percent stronger at 7.6594 as of 1:13 p.m. in Johannesburg, having been down as much as 0.4 percent. The yield on the nation’s 77 billion rand of 13.5 percent bonds due 2015 fell for a fourth day, dropping three basis points, or 0.03 percentage point, to 6.797 percent.

European finance ministers will meet this week to discuss raising a 500 billion-euro ($664 billion) ceiling on the region’s financial firewall. German business confidence unexpectedly rose to an eight-month high in March, data showed, while the National Association of Realtors may say today more Americans signed contracts to buy previously owned homes last month.

“The German IFO was better than expected; it just seems pretty much a typical risk-on move,” John Cairns, a currency strategists at Rand Merchant Bank in Johannesburg, said by phone. “Global equities are doing well.”

The Stoxx Europe 600 Index (SXXP) climbed 0.6 percent to 267.13 at 12:08 p.m. in London. The gauge has advanced 8.1 percent so far this quarter, on track for the best quarterly advance since September 2009, boosted by the European Central Bank’s 1 trillion euro ($1.3 trillion) loan to the region’s lenders.

The euro region is South Africa’s biggest trading partner, buying 22 percent of South Africa’s exports, according to government data.

Technical Levels

Earlier, the rand weakened after breaking through 7.68 last week, which represented a 38.2 percent Fibonacci retracement level, allowing for a potential reversal back to approaching 7.86, according to Johannesburg-based Tradition Analytics.

Fibonacci analysis uses ratios, which are based on the sequence identified by an Italian mathematician in the 13th century, to predict support and resistance levels for prices. Support is where buy orders may be clustered, while resistance is where there may be sell orders.

“Whilst strong resistance has already been encountered towards 7.7500, which has now held twice in the past two trading sessions, there is no clear reason for why one would want to sell dollars for rand, especially as geo-political tensions over Iran are still bubbling over,” George Glynos, an economist at Johannesburg-based ETM Analytics, wrote in e-mailed comments today.

Inflation Rate

The rand declined 1.6 percent last week, the most since the period ended Feb. 10, after a report showed inflation in Africa’s biggest economy slowed in February for the first time in a year, prompting traders to pare bets the central bank will raise interest rates this year. The central bank is expected to keep interest rates unchanged at 5.5 percent on Mar. 29, according to 12 economists polled by Bloomberg.

The consumer inflation rate fell to 6.1 percent from 6.3 percent in January, the first decline in a year, Statistics South Africa said on its website on March 22. The median estimate of 14 economists was 6.4 percent.

“While we, along with most of the market, expect the repo rate to remain unchanged this week, the post-meeting statement and media engagement should yield some insight into the bank’s view on inflation,” Nomvuyo Guma, a currency strategist at Standard Bank Group Ltd. in Johannesburg, said in e-mailed comments. “We maintain our long-held view that the MPC will not raise rates this year.”

Three-month forward-rate agreements starting in December shed 5 basis points to 5.85 percent. The contracts give an indication of investors’ expectations of interest rates.

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

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


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