Rand Weakens as Dollar Gains, Gold Retreats From One Month High

South Africa’s rand weakened for the first times in five days, reversing earlier gains, as the price of gold retreated and investors speculated importers were purchasing dollars at cheaper levels.

The currency of Africa’s biggest economy drifted between gains and losses before trading 0.7 percent weaker at 6.9216 per dollar by 4:22 p.m. in Johannesburg, from a previous close of 6.8760. Earlier the currency strengthened as much as 0.5 percent, the strongest since Nov. 10, before slipping as much as 1 percent to 6.9421.

Gold, which typically moves inversely to the U.S. currency, retreated from a one-month high of $1,418.80 an ounce as the dollar strengthened on comments by Federal Reserve Chairman Ben S. Bernanke that the U.S. is unlikely to return to recession.

“We’re just seeing a short-term pullback in the rand because of the rebound in the dollar and the fact that the gold price is coming off its recent highs,” Ian Cruickshanks, head of research at Nedbank Treasury in Johannesburg, said by telephone. “There’s also a lot of dollar buying by importers after the rand’s recent good run.”

South Africa’s currency rallied earlier today as prospects for further liquidity injections by policy makers in the U.S. and Euro zone boosted prospects of inflows into emerging markets. The rand has surged 37 percent since the start of last year as near-zero interest rates in developed nations encouraged investors to borrow cheaply and invest in higher-yield markets like South Africa, where the benchmark rate is 5.5 percent.

‘Attractive Destination’

Interest rates in South Africa compare with deposit returns of 0.1 percent in Japan and 0.25 percent in the U.S.

“The yield differential still makes South Africa an attractive destination,” said Cruickshanks. “Rates in the developed world are going to stay lower for longer and over time that will benefit alternative asset classes like the rand.”

Fed Chairman Bernanke said yesterday that the Fed may expand bond purchases beyond the $600 billion announced last month to spur growth, according to an interview broadcast by CBS Corp.’s “60 Minutes” program. Belgian Finance Minister Didier Reynders also said at the weekend that the European Union’s 750 billion-euro ($1 trillion) bailout fund could be increased.

“Policy makers from U.S., euro-zone, Japan and U.K. are likely to keep monetary policy accommodative for longer as they look to support economic growth,” Quinten Bertenshaw, a Johannesburg-based currency analyst at Tradition Analytics, wrote in a client note today. “All this liquidity creation will keep the demand for yield intact. This stands to benefit South Africa and further inflows into equities and bonds are likely to be seen in the months ahead, which bodes well for the rand.”

Government bonds fell in South Africa, reversing earlier gains, with the benchmark 13.5 percent security due September 2015 dropping 6 cents to 124.37 rand. The yield on the bond increased 1 basis point, or 0.01 percentage point, to 7.35 percent.

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