The rand gained for the first time in three days as stocks and commodities rallied on speculation losses this week were overdone after central banks added stimulus and Europe headed toward resolving its debt crisis.
The rand added 0.8 percent to 8.2430 a dollar as of 3:55 p.m. in Johannesburg, paring its decline this week to 0.4 percent. Yields on 6.75 percent bonds due March 2021 dropped 6 basis points, or 0.06 percentage point, to 6.62 percent, the lowest closing price since Sept. 11.
Global equity funds lured the largest weekly inflows this year after the U.S. Federal Reserve and the European Central Bank announced monetary stimulus measures, Citigroup Inc. said. The Financial Times reported that Spanish and European Union officials were working on plans to trigger ECB bond purchases. The euro area is South Africa’s biggest regional trading partner, taking about 25 percent of its exports.
“The mood is much better” after the rand’s decline to a one-week low yesterday, John Cairns and Josina Solomons, currency strategists at Rand Merchant Bank in Johannesburg, wrote in e-mailed comments. “Global equities recovered nicely,” supporting currencies, including the rand.
Emerging-market stocks gained, paring the weekly loss on the benchmark MSCI emerging market index. The Standard & Poor’s GSCI index of raw materials advanced for a second day and prices of metals including copper, platinum and gold rose. Metals and other commodities account for 45 percent of South Africa’s exports, according to government data.
Bonds gained after the South African Reserve Bank yesterday left its benchmark interest rate unchanged and said it would maintain an “accommodative policy” to bolster growth, prompting investors to add to bets on a second rate cut.
The bank unexpectedly cut its benchmark repo rate by 50 basis points to 5 percent on July 19, citing concern about the impact of slowing global growth on South Africa’s economy.
“Bonds are firming, tracking the rand,” Ian Cruickshanks, head of strategic research at Nedbank Group Ltd. in Johannesburg, wrote in e-mailed comments. “The Reserve Bank’s decision to hold interest rates steady and leave the door open for possible further easing ahead is adding to market support.”
Forward-rate agreements starting in six months dropped three basis points to 4.79 percent, or 29 basis points below the Johannesburg Interbank Agreed Rate, indicating that traders are pricing in almost a 60 percent chance of another 50 basis-points cut in the next six months.