The rand gained for a sixth day and yields fell to the lowest in more than three years as the Federal Reserve prepared to consider stimulus measures and the European Union moved toward renegotiating Greece’s bailout.
South Africa’s currency climbed 0.8 percent to 8.2236 per dollar as of 3:39 p.m. in Johannesburg, the longest winning streak since July. Yields on the nation’s 6.75 percent bonds due 2021 dropped 16 basis points to 7.40 percent.
Fed policy makers will begin a two-day meeting today as Group of 20 leaders focus their response to Europe’s financial crisis at a summit in Mexico. Further stimulus would boost demand for riskier assets, including the rand, amid optimism policy makers in Europe are taking steps to address the debt crisis, including adapting Greece’s aid program. Spanish bond yields declined after the nation sold 3.04 billion euros ($3.8 billion) of bills, compared with a target of 3 billion euros.
“With the Fed meeting this week, the firmer bias could remain intact” for the rand, Nomvuyo Guma, a currency strategist at Standard Bank Group Ltd. in Johannesburg, said in e-mailed comments. “The rand remains at the mercy of offshore developments.”
The rand’s three-month implied volatility against the dollar has climbed 58 basis points in the past month to 19.58 percent, the highest out of the 16 most-traded currencies, as traders anticipate wider price swings in coming weeks.
A European Union official said a politically acceptable path for renegotiating Greece’s bailout conditions will be sought. Once a government is formed, representatives of the so-called troika of the EU, International Monetary Fund and European Central Bank will travel to Athens and evaluate any requests for adaptations in the aid program, the official told reporters on condition of anonymity in Brussels today.
Emerging-market stocks gained, boosting the benchmark index to the highest in a month, and the Standard & Poor’s GSCI index of raw materials rose. South Africa’s benchmark stock gauge advanced for a third day.
Bond yields fell after data showed employment growth slowed in the first quarter, prompting investors to bet the central bank will cut interest rates to boost Africa’s biggest economy.
South Africa, which has the highest unemployment rate of 61 countries tracked by Bloomberg, added 5,000 non-farm jobs in the quarter through March, Statistics South Africa reported. Non-farm payrolls grew 0.1 percent in the quarter, compared with growth of 0.3 percent the previous quarter.
While the central bank’s policy mandate “does not explicitly include a focus on employment creation, one must assume that the flexibility of their inflation mandate allows room to consider the impact of slowing growth on the labour market,” Theuns de Wet and Mamello Matikinca, analysts at Rand Merchant Bank in Johannesburg, wrote in e-mailed comments. “A weak reading in today’s report will therefore be supportive of the interest rate bulls.”
Two-year interest-rate swaps, a gauge of investor expectations of average interest rates over the next two years, dipped 4.75 basis points to 5.4625, the lowest since November. The contracts pay 12.5 basis points less than Johannesburg Interbank Agreed Rate, indicating traders are pricing in a central bank rate cut. Swaps have declined from as high as 6.21 percent on March 21.
South Africa’s Treasury today auctioned 500 million rand ($61 million) of 7.75 percent bonds due 2023 for the first time at an average yield of 7.77 percent, the central bank said. It also sold 1.6 billion rand of notes maturing in 2017 and 2021.