Rand Gains 1st Day in 5 After Failing to Breach Resistance Level

The rand gained for the first time in five days as the currency’s biggest weekly slump since October failed to push it through a key resistance level. Bond yields also dropped for the first time this week.

The currency advanced 0.7 percent to 8.8652 per dollar by 3:36 p.m. in Johannesburg. The rand has weakened 1.7 percent this week, the worst performance of major emerging-market currencies monitored by Bloomberg and the most since the week ended Oct. 5. Yields on benchmark 10.5 percent bonds due December 2026 fell 11 basis points to 7.65 percent after reaching the highest in more than two weeks yesterday.

South Africa’s currency appreciated after failing yesterday to break through 9 per dollar, seen as an important resistance level to further weakness. The stochastics oscillator for the rand versus the dollar was 29.8 today, according to data compiled by Bloomberg, below the 30 threshold that signals the currency may have declined too fast and is poised to strengthen.

“We’re seeing a technical pullback after yesterday’s move,” Ian Martin, a senior currency trader at Rand Merchant Bank in Johannesburg, said by phone. “We’re stuck in a range but I still think the risk is” for further weakness, he said.

Stochastics measure the price of a security relative to its highs and lows during a particular period.

The rand’s decline this week came as violent wage protests in the Western Cape province damped investor sentiment and Standard & Poor’s downgraded Gold Fields Ltd., the country’s second-biggest gold miner, to junk.

Junk Rating

Police fired rubber bullets at farmworkers protesting low wages and poor service delivery, who burned down liquor stores and looted other stores in Swellendam, 124 miles east of Cape Town, eNCA Channel reported. Gold Fields, Africa’s second-largest producer of the metal, had its ratings cut to BB+ from BBB- as the risk of operating in South Africa increased, S&P said in a statement yesterday.

“In mentioning Gold Fields’ exposure to South Africa as one of the principle reasons behind the downgrade, it is yet another vote of no-confidence in South Africa’s leadership and the country’s investment prospect,” ETM analysts including Johannesburg-based George Glynos wrote in e-mailed comments. “It is yet another reminder to government of the desperate need to improve on South Africa’s industrial policies so as to raise the overall level of investment attraction.”

Bonds gained as yields at the highest in two weeks lured investors and as some traders bought the securities after selling bonds they didn’t own, betting the prices would fall.

“Yields are at the top of recent ranges, and providing a good entry level for some of the speculative portfolios,” Alvin Chawasema, a bond trader at Renaissance BJM Securities in Johannesburg, said by phone. “There was also some short-covering.”

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