South Africa’s rand rallied to its strongest level in almost two months against the dollar after most European banks passed stress tests, boosting confidence in the global economic outlook and investor appetite for risk.
The rand appreciated as much as 0.8 percent to 7.3784 per dollar, its strongest intraday price since May 4, before trading 0.4 percent higher at 7.4061 as of 10:42 a.m. in Johannesburg, from a close of 7.4345 on July 23. Against the euro, the rand gained 0.4 percent to 9.5567.
European regulators found that seven of the 91 banks subject to evaluations need to raise a combined 3.5 billion euros ($4.5 billion) of capital, lenders and regulators said after the close of European trading on July 23. Before the results were published, Goldman Sachs Group Inc. estimated that lenders would need to raise 38 billion euros and Barclays Capital said they would require as much as 85 billion euros.
“The stress tests were better than expected and while the news is still being digested, there has been a shift in sentiment with relief,” said Brigid Taylor, a senior currency trader at Rand Merchant Bank in Johannesburg. “This bodes well for riskier currencies such as the rand.” Taylor sees the rand trading between 7.36 and 7.45 against the dollar today, and between 7.32 and 7.48 during the week.
Advances in gold and platinum prices also boosted the rand. The metals account for about a fifth of South Africa’s export earnings.
Money-market futures dropped for the first time in three days as investors increased bets the central bank will cut rates when it announces its decision on Sept. 9. Forward-rate agreements showed that contracts for three-month cash due in three months fell 0.5 basis point to 6.32 percent.
Government bonds rose, with the price of the 13.5 percent security due September 2015 gaining 44 cents to 124.27 rand, lowering the yield by 9 basis points to 7.67 percent.