The rand gained for the first time in six days as investors gauged that last week’s biggest rout in emerging-market currencies was overdone. Bond yields fell to the lowest in more than four years.
The rand climbed as much as 0.4 percent, and traded 0.1 percent stronger at 8.7084 per dollar as of 4:04 p.m. in Johannesburg. Yields on benchmark 10.5 percent bonds due December 2026 dropped seven basis points, or 0.07 percentage point, to 7.10 percent, the lowest on a closing basis since December 2008.
South Africa’s currency dropped to its weakest level since Dec. 6 on Jan. 11 after Fitch Ratings cut South Africa’s credit rating by one level to BBB, the second-lowest investment grade, citing slowing growth, a widening budget deficit and rising unemployment. The rand’s weekly slide of 1.8 percent came even as foreign investors purchased a net 2.7 billion rand ($311 million) of South African bonds in the period.
“These rand losses are quite large so some players could be positioning for a pullback,” John Cairns, a currency strategist at Rand Merchant Bank in Johannesburg, said in e-mailed comments. “The global environment remains quite supportive as the start of the year has seen a sharp rotation into risk assets.”
The rand’s gains today were fueled as stocks and commodities advanced after a rally in Chinese shares boosted demand for high-yielding assets including commodities and emerging-market debt.
The MSCI Emerging Markets Index rebounded from its first weekly drop in two months and the Standard & Poor’s GSCI Index advanced as prices of metals including copper, platinum and gold rose. Mining accounted for 61 percent of South Africa’s exports in the first 11 months of 2012, according to government data.
“An extension of gains in Asian equities this morning to other markets could provide support for the local currency today,” Mohammed Nalla, head of strategic research at Nedbank Group Ltd. in Johannesburg, and colleagues wrote in e-mailed comments. “After Friday’s sell off related to the Fitch downgrade, bonds are finding some support this morning recouping most losses.”