Bloomberg News

Rand Gains as U.S. ISM Data, G-7 Meeting Raise Stimulus Hopes

June 05, 2012

The rand gained for a second day as service industries in the U.S. failed to gain momentum in May, adding to speculation global policy makers will take steps to stimulate economic growth, boosting riskier assets.

South Africa’s currency advanced 0.7 percent to 8.4401 per dollar by 4:48 p.m. after declining as much as 0.6 percent in earlier trading. Yields on the nation’s 6.75 percent bonds due 2021 fell two basis points to 7.743 percent.

Finance ministers and central bank governors from Group of Seven countries plan to hold a call today to discuss risks to the global economy posed by a further deterioration in Spain’s banking industry and a possible Greek departure from the 17- member euro area. The Institute for Supply Management’s index of non-manufacturing businesses rose to 53.7 in May from the prior month’s 53.5, a sign the U.S. is failing to gain momentum as employment slows and the European crisis intensifies.

The ISM data may lead to further monetary stimulus in the world’s biggest economy as it “confirms the view that the U.S. is struggling to boost its output and is not as resilient as people had hoped” Luke Barnett, a market analyst at Johannesburg-based ETM Analytics said by phone.

The European Central Bank will keep its main refinancing rate at a record-low 1 percent at a meeting tomorrow, according to economists surveyed by Bloomberg.

Bank of England policy makers will keep their main interest rate at 0.5 percent on June 7, according to all 55 economists in a Bloomberg survey. The central bank will hold its asset- purchase plan at 325 billion pounds ($499 billion), according to the median forecast of a separate Bloomberg survey.

‘Dovish Tone’

“Ahead of the ECB and BOE meetings, a lot of people are expecting a dovish tone, which is positive for emerging market currencies, including South Africa’s,” Barnett said.

Emerging-market stocks snapped four days of losses and Standard & Poor’s GSCI Index gained for a second day as the prices of metals including copper and nickel rose.

G-7 members are “concerned about the unstable situation in the current global economy and we need to share these concerns,” Japanese Finance Minister Jun Azumi told reporters in Tokyo. Canadian Finance Minister Jim Flaherty said yesterday in Ottawa that officials would discuss “the situation in Europe,” without elaborating about the call.

The euro area is South Africa’s biggest regional trading partner, buying 22 percent of the nation’s exports.

To contact the reporter on this story: Robert Brand in Cape Town at rbrand9@bloomberg.net 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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