Rand Climbs Against Dollar For First Time in Three Days Before Italy Vote
The rand advanced against the dollar, snapping a two-day decline, as Italy’s Chamber of Deputies began a debate before a vote on the nation’s budget that may lead to the ousting of Prime Minister Silvio Berlusconi.
The rand appreciated as much as 1.1 percent and traded 0.9 percent stronger at 7.8973 per dollar at 3:47 p.m. in Johannesburg. Against the euro, the rand rose 0.2 percent to 10.9300.
The vote in Rome today will test Berlusconi’s majority in parliament and determine if he has enough support to implement austerity measures amid a surge in the nation’s borrowing costs. A defeat for Berlusconi may boost riskier, emerging-market assets, as the Italian premier’s political problems are preventing him from dealing with the country’s debt problems, John Cairns and Nema Ramkhelawan-Bhana, currency strategists at Rand Merchant Bank in Johannesburg, wrote in e-mailed comments.
“Market fortunes are tied to Prime Minister Berlusconi’s future,” Cairns and Ramkhelawan-Bhana wrote. “If he goes, the rand can rally. If he stays, we risk another crisis like 2008.”
Commodity prices rose and South Africa’s benchmark stock index advanced for a second day, while bonds gained, driving four-year yields to the lowest in two months. The euro, the currency of South Africa’s biggest trading partner, strengthened against the dollar.
“It shows that risk is being put back on the table, and that is positive for our bond market,” Alvin Chawasema, a Johannesburg-based fixed-income trader at Renaissance BJM Securities, said by phone. “The euro has strengthened a bit, and the rand is tracking that.”
Bonds gained on speculation the Reserve Bank will cut its benchmark interest rate on Nov. 10 to stimulate growth in Africa’s biggest economy.
The yield on South Africa’s 13.5 percent bonds due 2015 declined 14 basis points, or 0.14 percentage point, to 6.377 percent, the lowest since Sept. 8.
The Pretoria-based Reserve Bank will probably follow the European Central Bank and cut its benchmark interest rate by half a percentage point to 5 percent, Standard Bank Group Ltd. and Goldman Sachs Group Inc. said. Both lenders changed their views from earlier forecasts that the rate would stay unchanged.
Forward-rate agreements starting next month traded at 5.36 percent today, down from 5.49 percent a week ago, indicating traders are increasing bets on a rate cut this week.
“Global interest rates remain at extremely low levels,” Rashaad Tayob, who helps manage about 800 million rand ($101 million) in fixed-income investments at Aeon Investment Management in Cape Town, wrote in a research note. “If the Reserve Bank does intend to cut rates to support the economic recovery, the November monetary policy committee meeting presents their last credible opportunity to do so.”
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