BLBG: Rand Extends Weekly Advance as NTT's Dimension Data Buyout Boosts Currency
The rand gained, poised for a second straight weekly advance, as a weaker dollar spurred purchases of higher-yield assets and investors speculated a Japanese takeover of Dimension Data Plc will boost South Africa’s currency.
The rand appreciated as much as 0.6 percent to 7.5410 per dollar and traded at 7.5347 by 1:33 p.m. in Johannesburg, from a close of 7.5852 yesterday. The move extended the rand’s weekly climb to 0.9 percent.
The dollar has depreciated for the past four days against the euro to a two-month low of 1.2993. Nippon Telegraph & Telephone Corp.’s $3.2 billion acquisition of Dimension Data Plc is “rand positive,” John Cairns, head of foreign-exchange research at Rand Merchant Bank in Johannesburg, wrote in a client note today. Dimension Data, known as Didata, estimates half of the $3.2 billion will flow to South Africa.
“The dollar has weakened quite a bit and that’s supportive of the rand because investors would rather hold alternative currencies or assets,” said Ian Cruickshanks, head of research at Nedbank Treasury in Johannesburg. “Inflows from the Didata deal are also positive but at the moment it’s having a limited impact on the rand because deal flow won’t be immediate.”
Interest rates in the U.S. of 0.25 percent make it attractive to borrow in dollars and invest the proceeds in markets or assets that offer higher returns. South Africa’s benchmark interest rate is 6.5 percent and its bonds yield as much as 8.94 percent.
“It costs you almost nothing to borrow in dollars and get a fat return in rand,” said Cruickshanks. “The bond market especially has attracted a lot of foreign money this year.”
Bonds
Foreign investors have been net purchasers of more than 40 billion rand ($5.3 billion) of South African bonds this year, according to data from the JSE Ltd., which runs the country’s exchanges.
Government bonds in South Africa snapped two days of declines, with benchmark 13.5 percent security due September 2015 gaining 8 cents to 124.03 rand. The yield on the bond declined 2 basis points to 7.74 percent.
Investors increased bets that South Africa’s central bank may lower its 6.5 percent benchmark interest rate when it next meets on July 22, forward-rate agreements show. The cost of three-month contracts for cash in one month declined 1 basis point to 6.41 percent.
