- Fed interest-rate increase may reignite rand weakening trend
- Bond yields drop to lowest level in more than seven weeks
South Africa’s currency advanced for a fourth day and bond yields fell to a seven-week low as commodity prices rebounded and bets of a delay in U.S. interest-rate increases boosted emerging-market assets.
The rand gained as much as 1.3 percent to 13.3407 per dollar, its strongest level since Sept. 21. Emerging markets are rallying this week after disappointing U.S. jobs data on Friday prompted futures traders to almost rule out a Federal Reserve rate increase in 2015. The currency may appreciate to as strong as 12.50 per dollar should it break through 13.30, and will probably weaken once the Fed boosts borrowing costs, according to Nedbank Group Ltd., a South African lender owned by London-based Old Mutual Plc.
“The rand and some other emerging-market currencies are bouncing back from what were clearly oversold levels,” prodded by fading bets for higher U.S. rates this year and helped by Chinese markets that have been closed this week, Nigel Rendell, a senior emerging-markets analyst at Medley Global Advisors LLC in London, said on Wednesday.
Traders of Fed-funds futures are practically ruling out a move in the U.S. rates after a policy meeting on Oct. 28, helping the rand to rebound from its worst quarter since the three months through September 2011. A bid by Anheuser-Busch InBev NV for SABMiller Plc had also triggered algorithm trading on speculation it will result in inflows into South Africa, helping to boost the rand, according to traders.
Yields on rand-denominated debt due December 2026 dropped 5 basis points to 8.17 percent, the lowest since Aug. 14. The rand was trading 1.1 percent stronger at 13.3678 per dollar by 5 p.m. in Johannesburg, extending gains this week to 2.7 percent. The currency, which has weakened for four straight years, has lost 13 percent in 2015.
“Even though technical indicators favor a move stronger for the rand in the near term, the medium-term view is a weaker one, given the expectations for a stronger dollar to prevail after the U.S. hikes interest rates,” Mohammed Nalla, head of strategic research at Johannesburg-based Nedbank Capital, said in an e-mailed note. “Hence the long-term weakening trend is expected to hold.”