The rand strengthened to its highest level in more than a month after Germany backed European Central Bank President Mario Draghi’s proposals to stem the region’s debt crisis, sparking a rally in riskier assets.
South Africa’s currency gained as much as 0.6 percent to 8.1189 per dollar, the strongest since July 5. It traded 0.2 percent up at 8.1483 as of 3:47 p.m. in Johannesburg. Yields on the nation’s 6.75 percent bonds due 2021 rose nine basis points to 6.67 percent.
Commodity prices rallied and the euro gained versus most of its 16 major counterparts after a spokesman for German Chancellor Angela Merkel said Germany is “not worried” about Draghi’s proposal for the ECB to buy debt of struggling euro-bloc countries in tandem with the region’s bailout fund, with details to be worked out in coming weeks. Euro gains were supported as the European Union said it had received no requests for the region’s rescue fund to buy government bonds.
“The euro has enjoyed some support as have risk assets in all forms,” Quinten Bertenshaw, a Johannesburg-based analyst at ETM Analytics, wrote in e-mailed comments. “All indications are that the bullish sentiment on risk markets including equities and emerging-market assets could persist for a little longer. This will be seen as good news for an economy like South Africa”, which depends on portfolio flows to finance its current-account deficit and sustain the rand, he added.
The rand often moves in tandem with the euro, with a statistical correlation of 0.7 over the past year, according to data compiled by Bloomberg. A value of 1 would mean they moved in lock step.
The Standard & Poor’s GSCI index of raw materials gained for a third day, reversing a decline in earlier trading. The prices of metals including copper and nickel rose. Metals and other raw materials accounted for 45 percent of South Africa’s exports, according to government data.
The rand stayed stronger after South Africa’s gold and foreign exchange reserves rose less than economists’ expectations in July as the central bank reduced dollar purchases. Net reserves climbed to $47.98 billion, from $47.94 billion, the South African Reserve Bank said. The median estimate of economists in a Bloomberg survey was for reserves to rise to $48.10 billion.
The reserves figures “indicate that the Reserve Bank stood back from the local currency market once again over the month,” Bruce Donald, a currency strategist at Standard Bank Group Ltd., said in e-mailed comments.