Rand Advances on German Confidence, U.S. Housing; Yields Fall

The rand advanced against the dollar after German business confidence unexpectedly rose and pending sales of U.S. previously owned homes held near a two-year high, boosting demand for equities and riskier currencies.

South Africa’s currency gained as much as 1.3 percent and traded 1.2 percent stronger at 7.5886 as of 4:14 p.m. in Johannesburg, the second-best performer out of emerging-market currencies monitored by Bloomberg. Yields on the nation’s 77 billion rand of 13.5 percent bonds due 2015 fell for a fourth day, dropping eight basis points, or 0.08 percentage point, to 6.747 percent.

German business confidence unexpectedly rose to an eight-month high in March, data showed, while the number of Americans signing contracts to buy previously owned homes was at 96.5 for February, compared with the January reading of 97, the highest since April 2010, a sign that the real-estate market may be stabilizing.

“Encouraging housing data from the United States, coupled with the German IFO data today, show that pockets of the global economy are starting to show signs of improvement,” Michael Keenan, currency strategist at Absa Capital, said by phone from Johannesburg. “Risky assets like the rand will benefit. Our view is for a stronger rand going forward.”

South Africa’s FTSE/JSE Africa All Share Index advanced as much as 0.5 percent, reversing an earlier 0.3 percent decline. The euro region is South Africa’s biggest trading partner, buying 22 percent of South Africa’s exports, according to government data.

Technical Levels

Earlier, the rand weakened after breaking through 7.68 last week, which represented a 38.2 percent Fibonacci retracement level, allowing for a potential reversal back to approaching 7.86, according to Johannesburg-based Tradition Analytics.

Fibonacci analysis uses ratios, which are based on the sequence identified by an Italian mathematician in the 13th century, to predict support and resistance levels for prices. Support is where buy orders may be clustered, while resistance is where there may be sell orders.

“Whilst strong resistance has already been encountered towards 7.7500, which has now held twice in the past two trading sessions, there is no clear reason for why one would want to sell dollars for rand, especially as geo-political tensions over Iran are still bubbling over,” George Glynos, an economist at Johannesburg-based ETM Analytics, wrote in e-mailed comments today.

Inflation Rate

The rand declined 1.6 percent last week, the most since the period ended Feb. 10, after a report showed inflation in Africa’s biggest economy slowed in February for the first time in a year, prompting traders to pare bets the central bank will raise interest rates this year. The central bank is expected to keep interest rates unchanged at 5.5 percent on Mar. 29, according to 12 economists polled by Bloomberg.

The consumer inflation rate fell to 6.1 percent from 6.3 percent in January, the first decline in a year, Statistics South Africa said on its website on March 22. The median estimate of 14 economists was 6.4 percent.

“While we, along with most of the market, expect the repo rate to remain unchanged this week, the post-meeting statement and media engagement should yield some insight into the bank’s view on inflation,” Nomvuyo Guma, a currency strategist at Standard Bank Group Ltd. in Johannesburg, said in e-mailed comments. “We maintain our long-held view that the MPC will not raise rates this year.”

Three-month forward-rate agreements starting in December shed 4 basis points to 5.86 percent. The contracts give an indication of investors’ expectations of interest rates.

The rand has gained 6 percent this year, headed for its best first quarter since 2003. It declined 18 percent last year, the second-worst performing emerging-market currency after Turkey’s lira.

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