• Currency set for three-week high after U.S. payrolls numbers
  • Gains seen capped before potential downgrade later Friday

The South African rand rallied as much as 2.2 percent against the dollar to lead gains by emerging market currencies after weaker-than-forecast U.S. payrolls numbers bolstered the likelihood that the Federal Reserve could delay its next interest-rate increase.

At 3:12 p.m. in Johannesburg, the rand was 1.9 percent stronger at 15.2750, gaining for a fourth day to its best level since May 12 on a closing basis. Yields on benchmark government rand bonds due December 2026 fell 11 basis points, the most since March 30 on a closing basis, to 9.21 percent. A gauge of emerging-market currencies climbed for a second day while the Bloomberg Commodity Index advanced for the third day.

The U.S. payrolls data is “largely bearish for the dollar in the near term as expectations around a Fed hike for June and July will soften considerably,” said Mohammed Nalla, head of strategic research at Nedbank in Johannesburg. “This plays firmly into our view of a deferred Fed hike and an overbought dollar in the short term.”

While the rand rallied to as strong as 15.2366 per dollar to breach 15.5000 resistance, it is unlikely to break the 15 level ahead of S&P Global Ratings’ review of South Africa’s credit ranking due later Friday, said Christopher Shiells, a senior emerging market analyst at Informa Global Markets in London. S&P will probably not cut the rating today, indicating instead that a change could come in December, Shiells said.

Twelve out of 13 analysts in a Bloomberg survey in April expected the ranking to be lowered to sub-investment grade by the end of the year, while four forecast the cut to happen on Friday.

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