The rand strengthened, extending its best weekly advance in five months, after U.S. employment increased at a faster pace than estimated, boosting demand for riskier emerging-market assets.
Seventeen of 24 emerging-market currencies monitored by Bloomberg gained against the dollar and stocks from New York to Moscow rallied as data showed U.S. employment picked up last month and the jobless rate unexpectedly fell to a four-year low. The Johannesburg Stock Exchange’s benchmark index rose 1.3 percent to its highest in a month. There is “more optimism” that Africa’s largest economy can expand faster than the 2.7 percent estimated in February, Finance Minister Pravin Gordhan said in a May 2 interview in London.
“U.S. non-farm payroll data was stronger than estimated coupled with a big revision on the previous number,” Vivienne Taberer, who helps manage about $14 billion in emerging-market debt and currencies at Investec Asset Management in Cape Town, said in an e-mailed reply to questions. “Emerging currencies have rallied.”
The rand gained as much as 0.5 percent to 8.9010 per dollar, its best level since April 12, and traded at 8.9195 by 7 p.m. in Johannesburg. That capped its best weekly gain since the five days through Dec. 7. Yields on 10.5 percent government debt due 2026 rose 3 basis points, or 0.03 percentage point, to 6.67 percent after falling to a record 6.64 percent yesterday. The yields were at 6.85 percent April 26.
U.S. payrolls expanded by 165,000 workers last month and revisions to the prior two months of data added a total of 114,000 jobs to the employment count in February and March. Near-zero interest rates in developed nations are prompting investors to seek better returns in emerging markets.
Policy makers lowered the European Central Bank’s refinancing rate to a record of 0.5 percent from 0.75 percent and left the door open to further monetary easing as the 17-nation euro region struggles to emerge from recession. The Federal Open Market Committee said May 1 it will maintain its bond buying under the quantitative-easing stimulus strategy at a pace of $85 billion a month until the labor-market outlook has improved substantially.
“South Africa’s medium-term bond yields are attractive and are attracting foreign buyers, which, in turn, is supporting the rand,” Theuns de Wet, head of global markets research at Rand Merchant Bank in Johannesburg, said in e-mailed comments. “The rand is also benefiting from the increase in risk appetite which accompanies central banks’ implicit guarantee that they’ll support global growth.”
Foreign investors bought a net 723 million rand ($81 million) of South African bonds yesterday, bringing net purchases in the first four days of the week to 2.7 billion rand. The extra yield investors receive for holding South African 10-year debt rather than U.S. Treasuries narrowed 13 basis points today to 440. The spread has declined 54 basis points this year.