Rand Gains to 3-Week High as Europe Moves to Solve Debt Crisis

The rand advanced to a three-week high against the dollar as speculation European leaders are moving closer to a resolution of the region’s debt crisis spurred demand for riskier assets.

South Africa’s currency strengthened as much as 0.9 percent to 7.9680 per dollar, the highest since Nov. 14. It traded 0.6 percent firmer at 7.9936 as of 3:45 p.m. in Johannesburg, adding to last week’s 6.2 percent advance. Against the euro, it gained 0.2 percent to 10.7474, the strongest level on a closing basis since Oct. 10.

Emerging-market stocks gained for a sixth day and commodity prices rose as Italy’s cabinet approved plan to cut its deficit before a European summit on the region’s debt crisis. South Africa’s benchmark stock index climbed for the first day in three, led by commodity exporters including Anglo American Plc.

“Markets are cautious but maybe, just maybe, we could be moving towards a solution to Europe’s problems,” John Cairns, a currency strategist at Rand Merchant Bank in Johannesburg, wrote in e-mailed comments. “The rand has reflected this positive sentiment.”

German Chancellor Angela Merkel is scheduled to meet French President Nicolas Sarkozy to advance a plan for stricter enforcement of the region’s deficit rules that will be presented to European Leaders at a summit on Dec. 9.

Italian Prime Minister Mario Monti announced 30 billion euros ($40 billion) of austerity and growth measures yesterday. The package includes a tax on luxury goods, resurrects a property levy on first homes, and forces many workers to delay retirement. The proposal will go before both houses of parliament today.

“Weekend reports of a new austerity plan for Italy have kept the mood risk-on, with the rand stronger this morning,” Nomvuyo Guma, a Johannesburg-based currency strategist at Standard Bank Group Ltd., and colleagues wrote in an e-mail. “We anticipate that the rand’s strengthening bias will continue as we head into the holidays. The rand has a cyclical tendency to strengthen in December, which, barring renewed risk aversion brought about by the euro zone, should keep it well supported over the coming weeks.”

South Africa’s 13.5 percent bonds due 2015 gained for a sixth day, driving the yield down two basis points, or 0.02 percentage points, to 6.67 percent.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE