BLBG:Rand Weakens First Day in Three on Dollar-Purchase Talk
The rand weakened for the first time in three days amid speculation South Africa’s central bank is increasing its dollar purchases in the market after the currency advanced to a five-month high. Bonds declined.
South Africa’s currency retreated 0.5 percent to 7.5635 per dollar as of 1:08 p.m. in Johannesburg. Against the euro, it depreciated 0.5 percent to 9.8927. The yield on the nation’s 79 billion rand ($10.5 billion) of 6.75 percent bonds due 2021 rose five basis points, or 0.05 percentage point, to 7.89 percent, the highest since March 5.
“Market talk suggests that the Reserve Bank has become more active in mopping up some dollars towards 7.5000 rand” per dollar, George Glynos, an economist at Johannesburg-based ETM Analytics, wrote in e-mailed comments today. Central bank activity “should leave the downside reasonably well contained and the dollar-rand continuing to trade in a 7.48 to 7.60 range,” he added.
Reserve Bank spokesperson Candice Jeffreys didn’t immediately return an e-mail or voicemail message for comment. The central bank adds to its foreign exchange reserves “as and when appropriate,” though it doesn’t target a level for the rand and won’t sell dollars to defend the currency, Governor Gill Marcus said in October.
The central bank’s gross foreign exchange and gold reserves rose 0.9 percent in February from the previous month to $51.9 billion as the price of gold surged and the dollar weakened, boosting the value of other foreign currencies, the Pretoria- based Reserve Bank said on March 7. The bank probably made no “material” dollar purchases in the month, Standard Bank Group Ltd. said in a research note on the same day.
“They probably will be active when there are patches of rand strength,” Ion de Vleeschauwer, the Johannesburg-based chief dealer at Bidvest Bank Ltd., the nation’s biggest chain of money-changers, said by phone. “I wouldn’t call it intervention because it isn’t aggressive, but it is another barrier for the rand to go stronger.”
The rand has gained 7.3 percent against the dollar this year, rising to a five-month high on Feb. 29.
The rand also declined after the Federal Reserve damped expectations it will begin a third round of dollar-debasing monetary stimulus. The Fed said it expects “moderate economic growth” and predicted the unemployment rate “will decline gradually,” reducing expectations of a third round of bond purchases.
Gold dropped to near a seven-week low and Standard & Poor’s GSCI Index (SPGSCI) of 24 raw materials fell 0.4 percent as the dollar strengthened against 15 of its 16 most-traded currencies tracked by Bloomberg. Metals and other commodities account for 65 percent of South Africa’s exports, according to government data.
Rand ‘Struggle’
“Indications that a third round of quantitative easing will not materialize any time soon” are hurting currencies including the rand against the dollar, Glynos wrote. The rand “might struggle to post the same level of gains in the future as has been the case recently,” he added.
South Africa’s $1.5 billion of 4.665 bonds due 2024 declined, driving the yield three basis points higher to 4.18 percent. The extra yield investors demand to hold the country’s debt rather than U.S. Treasuries narrowed three basis points to 201 basis points, the lowest since the bonds starting trading on Jan. 17.
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
