The rand declined for the first time in five days, retreating from a five-week high against the dollar as South African companies took advantage of the currency’s rally to buy dollars to pay for imports.
The rand depreciated 0.1 percent to 8.9997 per dollar at 9:33 a.m. in Johannesburg after advancing as much as 0.4 percent in earlier trade to 8.9549 per dollar. Yields on benchmark 10.5 percent bonds due December 2026 were unchanged at 7.01 percent, the lowest since February 2006, after falling 13 basis points yesterday.
The currency climbed to its strongest level against the dollar in more than five weeks in earlier today as monetary easing from Japan to the U.S. sparked demand for high-yielding assets including South African bonds. That provided an opportunity for companies to buy dollars, said Mohammed Nalla, head of strategic research at Nedbank Group Ltd. (NED) in Johannesburg.
“At current levels we expect importers to take advantage of” rand strength, Nalla wrote in a report e-mailed to clients today. “Initially, we expect decent demand for dollars as the local market takes advantage of the improvement in the rand.”
Nedbank sees the rand trading at 8.90 per dollar to 9.05 per dollar today, though the currency may resume gains and advance to 8.85 after opening below 9 per dollar, he said.
Foreign investors bought a net 1.9 billion rand ($212 million) of South African bonds yesterday, adding to 5.4 billion rand of purchases last week, the most since November, according to JSE Ltd. data. Investors receive 479 basis points of extra yield for holding South African 10-year bonds rather than U.S. Treasuries. The premium has narrowed 16 basis points since the beginning of last week.
“It was again a case of so much money chasing so few assets,” Thando Vokwana, a fixed-income trader at Rand Merchant Bank in Johannesburg, said in e-mailed comments. The rand “looks set to push even lower” after breaching 9 per dollar for the first time since March 1, he said.
The Bank of Japan (8301) said last week it will buy more longer- term government bonds than forecast as part of its asset- purchase program, European Central Bank President Mario Draghi said monetary policy will remain accommodative, while the Bank of England said it will continue buying assets. Fed Chairman Ben S. Bernanke may push on with $85 billion in monthly bond purchases through the northern-hemisphere summer as sluggish jobs data adds to evidence of slower growth.
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