The rand gained the most in more than a month and yields fell to the lowest in a week as stocks and commodity prices rose after U.S. payrolls climbed more than forecast in July, boosting demand for riskier assets.
South Africa’s currency strengthened as much as 2.3 percent, the most since June 29. It traded 2.1 percent stronger at 8.1717 per dollar as of 4:07 p.m. in Johannesburg, paring its decline this week to 0.2 percent. Yields on 6.75 percent bonds due 2021 fell 12 basis points to 6.55 percent.
U.S. payrolls added 163,000 in July, boosted by a pickup in employment at automakers, even as the jobless rate unexpectedly rose to a five-month high, Labor Department figures showed. The increase had been seen at 89,000 in a Bloomberg survey. Members of German Chancellor Angela Merkel’s coalition parties signaled they won’t stand in the way of European Central Bank chief Mario Draghi’s plan to buy government bonds. Italian and Spanish debt rebounded.
“We’ve gone from extreme negativity to extreme positivity,” Ion de Vleeschauwer, chief dealer at Johannesburg- based Bidvest Bank Ltd., South Africa’s biggest chain of money- changers, said by phone. “Stock markets are flying, and we’ve seen a huge turnaround in the euro-dollar.”
Commodity prices gained, driving the Standard & Poor’s GSCI Index to a two-week high, led by metals including copper, nickel and platinum. South Africa’s benchmark stock index headed for its biggest weekly advance since January. Metals and other raw materials accounted from 45 percent of South Africa’s exports in 2011, according to government data.
The euro gained as much as 1.3 percent against the dollar after weakening 1 percent in the previous two days. The rand and the euro often trade in tandem, with a statistical correlation of 0.7, according to data compiled by Bloomberg. A value of 1 would mean they moved in lock step.
Draghi yesterday said “risk premia” in the bond market “need to be addressed in a fundamental manner,” and details of the plan would be fleshed out in coming weeks in consultation with governments. The Fed on Aug. 1 signaled its readiness to support the U.S. economy even as it refrained from adding to bond purchases. Further stimulus would boost demand for riskier, higher-yielding assets including South African bonds.
“The deterioration in the economy and increase in risk premia on bond yields has created the possibility that the ECB could become more interventionist” even as it refrained from immediate action, Tertia Jacobs, a Johannesburg-based economist at Investec Ltd., wrote in e-mailed comments. Fed policy makers “sent a strong signal that it is ready to take action”, she added.
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