The rand declined, paring its first weekly advance in four, as traders bet a four-day rally that took the currency to the strongest level against the dollar in a month was overdone. Bond yields fell to six-week lows.
South Africa’s currency depreciated 0.3 percent to 8.7024 per dollar as of 3:05 p.m. in Johannesburg. That cut its gain this week to 2.3 percent, the biggest since the five days ending Sept. 7. Yields on the government’s 10.5 percent bonds due December 2026 fell seven basis points, or 0.07 percentage point, to 7.37 percent, the lowest since Sept. 27. The yield has declined 23 basis points this week.
The rand strengthened as much a 1.2 percent yesterday to 8.6634 per dollar, the highest level since Nov. 8, after South Africa’s third-quarter current-account deficit remained unchanged at 6.4 percent, less than the 6.7 percent median estimate of economists in a Bloomberg survey. Foreign investors bought a net 1.01 billion rand ($116 million) of South African stocks and 1.57 billion rand of bond yesterday, according to data from JSE Ltd., operator of the nation’s equity and interest-rate markets.
“The market adjustment yesterday was quite extraordinary,” John Cairns, a currency strategist at Rand Merchant Bank in Johannesburg, said in e-mailed comments. “The rand is now probably overextended” and “it looks like we’ll see something of a reversal” in line with declines in other emerging-market currencies, he said.
The dollar advanced against 17 out of 25 emerging-market currencies monitored by Bloomberg today.
Bonds gained on speculation low interest rates in developed nations will boost investment in higher-yielding, emerging- market debt.
A majority of European Central Bank policy makers were open to cutting the benchmark rate yesterday and there is a possibility of a reduction early next year if the economy doesn’t pick up, three officials with knowledge of the Governing Council’s deliberations said.
ECB President Mario Draghi said yesterday that while there was a “wide discussion” about interest rates, “the prevailing consensus was to leave the rates unchanged.” The ECB held its benchmark at a record low of 0.75 percent and kept the deposit rate at zero.
“Talk of an EU rate cut and weak growth abroad” mean that “South Africa’s relative attraction to foreigners is further enhanced,” Quinten Bertenshaw, a Johannesburg-based analyst at ETM Analytics, said in a note e-mailed to clients today.
Foreign investors have bought a net 93.4 billion rand of South African bonds this year, this most on record, helping to drive yields down record lows.
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