The rand advanced versus the dollar, paring its worst weekly decline in four, after better-than- expected U.S. employment data eased concern the world’s biggest economy is sliding into a recession.
The rand strengthened as much as 0.9 percent to 6.8585 per dollar, and traded 0.8 percent up at 6.8630 as of 3:29 p.m. in Johannesburg, trimming its retreat this week to 2.5 percent, the biggest since the week ended July 15. The rand gained 0.5 percent to 9.7549 per euro.
The dollar index, which measures the currency against six major U.S. trading partners, fell 0.3 percent after reports showed U.S. payrolls rose and the unemployment rate declined to 9.1 percent in July, spurring traders to close bearish bets on South Africa’s currency.
“We’ve seen some short-covering in the rand in the wake of the better employment report,” Michael Keenan, an analyst at Standard Bank Group Ltd., said by phone from Johannesburg. “Risky assets have sold off so much already this week that there is probably some profit-taking” as investors close out short rand positions, he said.
In a short sale, speculators borrow and sell an asset, betting it will decline in value so they can buy it back at a lower price and pocket the difference.
The rand earlier declined to its lowest level in more than two weeks after U.S. reports on jobless claims, manufacturing and spending pointed to an economic slowdown, and the European Central Bank said it had bought bonds of debt-ridden countries to prevent Europe’s credit crisis from worsening. Those risks remain, threatening further gains, Keenan said.
The rand’s three-month implied volatility versus the dollar soared as much as 1.4 percentage points today to 16.9 percent, the highest in more than a year, indicating that investors expect swings in the currency to widen in coming weeks.
Options traders are more bearish on the rand than at any other time this year, with the extra price of three-month contracts to sell the rand rather than buy it rising as much as 80 basis points, or 0.8 percentage point, to 4.30 percentage points today, according to so-called risk-reversal rates compiled by Bloomberg.
“I still think one number doesn’t change the gloomy environment,” Keenan said. “U.S unemployment is still more than 9 percent. The underlying concerns about the global economy are still there.”
Bonds declined for the first day in six. The 6.75 percent securities due 2021 dropped 61 cents to 91.65 rand, driving the yield up 10 basis points to 8.01 percent.
Today’s retreat pared the return on 10-year bonds this week to 1.85 percent, the best weekly performance in almost a year, on speculation slowing economic growth will help tame inflation in Africa’s largest economy.
Foreign investors purchased a net 1.78 billion rand ($256.5 million) of South African bonds yesterday, according to the JSE Ltd., which runs the nation’s stock and bond exchanges. Foreign investors have bought 47.3 billion rand of South African debt this year, attracted by 10-year yields as much as 5.51 percentage points more than U.S. Treasuries.
“Foreign appetite for yield in the uncertain global market and coupled with the carnage on the JSE probably implies potential further gains on bond yields,” Rand Merchant Bank analysts led by Theuns de Wet wrote in a research note.
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