Rand Declines First Day in Three as Data Damps Risk Appetite

The rand declined for the first time in three days, retreating from a three-week high, and bonds gained as data in the U.S. and Europe fueled concern about the global economy and producer inflation in South Africa slowed.

South Africa’s currency slipped 0.4 percent to 7.7779 per dollar as of 3:39 p.m. in Johannesburg, paring its gain this week to 1 percent. The yield on the nation’s 6.75 percent bonds due 2021 dropped three basis points, or 0.03 percentage point, to 7.67 percent.

An index of executive and consumer sentiment in the 17- nation euro region slid more than economists’ estimates in March, while U.S. jobless claims fell less than expectations, boosting demand for the safety of the dollar. South Africa producer price inflation slowed for a fifth consecutive month, easing pressure on the central bank to lift borrowing costs from a three-decade low.

“I didn’t see anything today that was risk-positive,” William van Rijn, a currency trader at Nedbank Group Ltd. in Johannesburg, said by phone. “Given the rand’s move over recent trading sessions, we have seen some profit-taking ahead of the long weekend. Importers are seeing good value at these levels and we’ve seen heavy demand from that quarter.”

The rand strengthened as much as 0.3 percent in earlier trading, climbing to its highest level since April 4, after the Federal Reserve reiterated it will keep interest rates low until at least late 2014 as the U.S. economic recovery gathers pace. South Africa’s markets are closed tomorrow for the Freedom Day public holiday.

Policy Rate

The cost of goods leaving factories and mines in Africa’s biggest economy increased 7.2 percent, compared with 8.3 percent in February, Pretoria-based Statistics South Africa said on its website today. The median estimate of 13 economists surveyed by Bloomberg was 8 percent.

The South African Reserve Bank has kept its key policy rate unchanged at 5.5 percent since November 2010 to help stimulate the economy. Consumer-price inflation slowed to 6 percent in March, the top end of the bank’s 3 percent to 6 percent target, adding to expectations rates will remain unchanged this year.

Forward-rate agreements starting in a year dropped six basis points to 5.95 percent, the lowest since February 17.

“With a softer inflation trajectory expected, this should give the SARB room to leave interest rates unchanged this year, with a tightening cycle likely to start in only in the second half of 2012,” Tebogo Mosepele, an analyst at Standard Bank Group Ltd. in Johannesburg, said in e-mailed comments.

The yield on South Africa’s $1.5 billion of 4.665 bonds due 2024 dropped 18 basis points to 4.09 percent, the lowest since the notes were first sold on Jan. 17. The extra yield investors demand to hold the debt rather than U.S. Treasuries narrowed by six basis points to 213 basis points.

To contact the reporter on this story: Robert Brand in Cape Town at rbrand9@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net

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