The rand strengthened for the first time in four days against the dollar, the most among major currencies, after South Africa’s current-account deficit unexpectedly narrowed and inflation slowed more than estimates.
The currency appreciated 0.5 percent to 9.9408 per dollar at 11:23 a.m. in Johannesburg, while the yield on benchmark 13.5 percent bonds due September 2015 fell 14 basis points to 6.12 percent, the most since May 2. The current account shortfall narrowed to 5.8 percent of gross domestic product in the first quarter, from 6.5 percent the previous three months, the South African reserve Bank said. The median estimate of economists in a Bloomberg survey was for the gap to widen to 6.9 percent.
A narrowing deficit requires less foreign investment to pay for imports, reducing pressure on the currency as flows into the nation’s bond market slow on speculation the U.S. Federal Reserve is set to reduce monetary easing. Slowing inflation gives the central bank more room to hold borrowing costs at three-decade lows to stimulate the economy.
“Investors are pricing in a reduced chance of the Reserve Bank having to hike interest rates,” Robert Price, a market analyst at ETM Analytics in Johannesburg, said by phone. “The rand would have reacted more strongly but the market is still quite cautious ahead of the Federal Open Market Committee” press conference later today.
A separate report showed South Africa’s consumer inflation rate slowed to 5.6 percent in May, from 5.9 percent the previous month. The median estimate of economists in a Bloomberg survey was 5.8 percent. Fed policy makers are concluding a two-day meeting amid speculation the bank is poised to reduce bond purchases which have fueled demand for emerging-market debt.
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