The rand gained to a four-week high against the dollar and headed for its best weekly performance since December as evidence mounts the U.S. economy is slowing, boosting demand for South Africa’s higher-yielding bonds.
The rand advanced as much as 0.9 percent to 6.6969 per dollar, its strongest level since May 9. It traded 0.6 percent up at 6.7264 at 4:54 p.m. in Johannesburg, bringing its gain this week to 3 percent, the best performance for the period among more than 20 emerging-market currencies monitored by Bloomberg. It declined 0.2 percent to 9.7984 per euro.
The rand’s rally started on May 30 after South African antitrust authorities approved Wal-Mart Stores Inc.’s $2.4 billion purchase of a controlling stake in Massmart Holdings Ltd. It extended its gains today after a Labor Department report showed U.S. employers added fewer jobs in May, making it harder for the Federal Reserve to tighten monetary policy.
“The Massmart deal did support sentiment, and we’ve seen good foreign flows into the bond market because we have relatively prudent policies in place,” Chris Becker, a Johannesburg-based analyst at Econometrix Treasury Management, which advises companies on currency transactions, said by phone. “The rand is looking like a bit of a safe haven.”
Foreign investors were net buyers of 1.2 billion rand ($178.6 million) of South African bonds yesterday, according to JSE Ltd. data, helping drive the yield on the benchmark 10-year government bond to a five-month low. Foreigners have purchased 20.7 billion rand of South African bonds this year.
U.S. Jobs Data
The Labor Department reported today that payrolls expanded by 54,000 workers in May, the fewest in eight months, after a revised 232,000 gain the previous month that was the smaller than initially projected. The median estimate of economists surveyed by Bloomberg was for jobs growth to slow to 165,000.
The Dollar Index, which tracks the greenback against the currencies of six trading partners, fell as low as 73.99 after the payrolls report, the lowest since May 6.
Investors bought South African bonds on speculation U.S. rates will stay near zero for longer as the Federal Reserve attempts to revive the U.S. economy, boosting the relative appeal of rand assets for investors who borrow in one currency to invest the proceeds in higher-yielding assets. South Africa’s benchmark central bank rate is 5.5 percent, compared with 0.25 percent in the U.S.
Bonds, Carry Return
“Dollars are being sold across most of the Group of 10 currencies and as such we can expect further rand strength,” Brigid Taylor, a senior currency analyst at Rand Merchant Bank in Johannesburg, said in an e-mailed response to questions by Bloomberg. “Flat rates globally pose a positive for both the currency and bonds locally.”
The rand returned 3 percent in the so-called dollar carry trade this week, the best performance out of more than 20 emerging-market currencies monitored by Bloomberg.
The 6.75 percent government bonds due 2021 climbed 46 cents to 90.26 rand, driving the yield down seven basis points, or 0.07 percentage point, to 8.21 percent, the lowest since Jan. 7. The 13.5 percent notes due 2015 added 31 cents to 121.89 rand, reducing the yield seven basis points to 7.41 percent.
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