The rand led declines against the dollar amid speculation South Africa’s central bank increased purchases of the U.S. currency. Bond yields hit two-month highs as the Federal Reserve raised its outlook for the U.S. economy.
South Africa’s currency retreated as much as 2.1 percent, the biggest decline since Feb. 10, and traded 2 percent weaker at 7.6773 as of 5:37 p.m. in Johannesburg, the most out of more than 25 emerging-market currencies monitored by Bloomberg. Yields on the nation’s 13.5 percent bonds due 2015 climbed 16 basis points, or 0.16 percentage point, to 6.83 percent, the highest since Jan. 9.
“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 spokeswoman 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 that 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.
South Africa’s currency extended its decline today after a report said retail sales growth expanded at the slowest pace in six months in January, adding to signs of a slowdown in Africa’s biggest economy.
Sales growth eased to 3.9 percent from 8.7 percent a month earlier, Pretoria-based Statistics South Africa said on its website. The median estimate in a Bloomberg survey of 10 economists was 6.7 percent. Sales fell 0.6 percent from a month earlier. The annual rate was the lowest since July.
The retail data “is negative for the rand from a GDP differential perspective,” Shireen Darmalingam, an analyst at Standard Bank Group Ltd. in Johannesburg, said in e-mailed comments. “Given the backdrop of still weak global economic growth, the rand could edge weaker as market participants take their cue from the on-going uncertainty and volatility in the euro zone.”
Bonds declined as traders added to bets interest rates will rise after the Federal Open Market Committee said it expects “moderate economic growth” in the U.S. and predicted the unemployment rate “will decline gradually,” reducing expectations of a third round of bond purchases.
Three-month forward-rate agreements starting in December climbed eight basis points to 5.98 percent, implying traders see a near-100 percent chance of a 50 basis points rate increase this year. South Africa’s central bank has left its repo rate at a three-decade-low 5.5 percent for the past 18 months to help boost growth.
Faster economic growth in the world’s biggest economy would also boost the relative attractiveness of equities over bonds. South Africa’s benchmark stock index climbed for a second day, rising to a record as three stocks rose for every one that fell.
“The FOMC statement was the trigger for all of this,” Michael Grobler, an analyst at Afrifocus Securities in Cape Town, said by phone. “There may be some rotation taking place, with money going into equities.”
The yield on South Africa’s $1.5 billion of 4.665 bonds due 2024 rose one basis point 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.
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