The rand declined, paring its biggest weekly advance this year, as investors bet a rally that took it to a six-week high had gone too far.
South Africa’s currency retreated 0.2 percent to 8.9133 per dollar by 4:08 p.m. in Johannesburg, paring its gain this week to 2.1 percent, still the most since the five days through Dec. 7. Yields on 10.5 percent bonds due December 2026 dropped two basis points, or 0.02 percentage point, to 7.04 percent, for a decline of 10 basis points this week.
The rand had strengthened 4.8 percent since falling to a four-year low on March 21, rallying for seven straight days until yesterday, as monetary easing by global central banks sparked demand for emerging-market bonds. That rebound may be overdone, a technical indicator signaled.
“Resistance to further rand gains is likely” as the currency “moves into overbought territory,” Mohammed Nalla, head of strategic research at Nedbank Group Ltd. in Johannesburg, said in a report e-mailed to clients today. “Given the correction over the last three weeks, dollar-buying interest should resume around current levels.”
The stochastic oscillator for the rand versus the dollar was at 91 today, above the 70 threshold that signals the currency may have appreciated too quickly and is poised for a retreat. The measure, which tracks the price of a currency relative to its highs and lows during a particular period, has been above 70 for the past two days.
The rand also declined after manufacturing data added to evidence that Africa’s biggest economy is stalling. Factory output declined 2.9 percent in February from revised growth of 3.7 percent in January, as domestic and global demand dropped, offsetting the benefits of a weaker rand. The median estimate in a Bloomberg survey of nine economists was for 2.1 percent growth.
“A much weaker manufacturing number moved the currency” weaker, Bruce Donald, a strategist at Standard Bank Group Ltd. in Johannesburg, said via e-mail.
A recession in Europe, which accounts for a fifth of South African exports, and local labor unrest have curbed growth and undermined consumer confidence in South Africa. The Reserve Bank and National Treasury expect the economy to expand 2.7 percent this year, less than the 7 percent the government is targeting to address a 24.9 percent unemployment rate. Manufacturing makes up about 15 percent of South Africa’s gross domestic product.