The rand strengthened to the highest in more than five weeks against the dollar and South African bonds rose after Lawrence Summers withdrew his bid to become Federal Reserve chairman, boosting demand for emerging-market assets.
The former Treasury Secretary would have cut stimulus faster than Janet Yellen, his main rival to replace Ben S. Bernanke, according to a Bloomberg Global Poll last week. The Fed’s monthly bond-buying program, which fueled demand for higher-yielding assets, may be cut to $75 billion from $85 billion this week, according to the median estimate of economists surveyed by Bloomberg. South African inflation accelerated in August above the central bank target for a second month, a report may show on Wednesday.
“There is very strong global risk appetite after the announcement that Summers is no longer running,” Mohammed Nalla, head of strategic research at Nedbank Group Ltd., said by phone from Johannesburg. The rand may extend gains to reach 9.65 per dollar after breaching key technical levels, he said.
South Africa’s currency appreciated 1.9 percent to 9.7420 per dollar, the strongest intraday level since Aug. 9, and traded 1.5 percent up at 9.7820 as of 4:25 p.m. in Johannesburg. Yields on benchmark 10.5 percent bonds due December 2026 dropped nine basis points, or 0.9 percentage point, to 8.07 percent, the lowest on a closing basis since July 24.
The dollar declined against 15 of the 16 most-traded currencies and emerging-market stocks rose to a three-month high. More than $47 billion left global funds investing in emerging-market bonds and stocks from May through August amid concern that reduced Fed stimulus would erode demand for riskier assets. Fed policy makers are meeting on Sept. 17-18.
“Wednesday’s announcement will be the key event for the week, and possibly the year,” John Cairns, a currency strategist at Rand Merchant Bank in Johannesburg, said in e-mailed comments. “With the lack of clarity on what the market expects, volatility post the event is almost certain no matter the outcome.”
South Africa’s inflation rate probably rose to 6.4 percent in August from 6.3 percent the month before, according to the median estimate of 21 analysts in a Bloomberg survey. Rising prices are limiting the South African Reserve Bank’s room to stimulate the economy. The central bank will leave its key repurchase rate unchanged at 5 percent on Sept. 19, according to all 18 economists surveyed.
Foreign investors bought a net 1.16 billion rand ($118 million) of South African bonds and 527 million rand of equities on Sept. 13, bringing net investment in the nation’s capital markets last week to 9.01 billion rand, according to JSE Ltd. data.