Rand Rebounds on Technical Signal Drop to 4-Year Low OverdoneRobert Brand and Stephen Gunnion
The rand posted its biggest gain in a month, paring a fourth straight weekly decline, as investors bet the currency’s drop to a four-year low was overdone and as the euro rose to an 11-month high.
The rand strengthened as much as 0.8 percent to 8.9883 a dollar, the biggest gain since Dec. 27, and was trading at 9.0047 at 4 p.m. in Johannesburg. It has weakened 1.4 percent this week. Yields on benchmark 10.5 percent bonds due December 2026 declined three basis points, or 0.03 percentage point, to 7.36 percent, after climbing 15 basis points over the four previous sessions.
The rand has slumped almost 6 percent this year, the worst-performer of 25 emerging-market currencies monitored by Bloomberg, as accelerating inflation added to concern about slowing growth amid labor protests and civil unrest in Africa’s biggest economy. Technical indicators suggest the decline has gone too far, according to Ion de Vleeschauwer, the Johannesburg-based chief dealer at Bidvest Bank Ltd.
“The rand is a bit oversold,” De Vleeschauwer said by phone today. It is also benefiting from the euro’s gains against the dollar, he said. “You can expect a bit of a correction.”
The euro gained for a second day, advancing 0.3 percent to 1.3410 against the dollar, the strongest since Feb. 29. The European Union is South Africa’s biggest regional trading partner, buying 22 percent of its exports, according to government data. The rand often moves in tandem with the euro, with a statistical correlation of 0.6 over the past year. A value of 1 would mean they moved in lock step.
The rand’s relative strength index against the dollar was at 25.5 yesterday, below the 30 level that signals the currency is oversold.
A stochastic oscillator for the rand versus the dollar was also below the 30 threshold that signals the currency may have depreciated too quickly and is poised for a rebound. The measure, which tracks the price of a security relative to its highs and lows during a particular period, has been below 30 since Jan. 15.
The rand may resume it fall in coming weeks as outflows from the nation’s bond market weigh on the currency, said John Cairns, a currency strategist at Rand Merchant Bank in Johannesburg. Foreign investors sold a net 420 million rand ($47 million) of South African bonds yesterday, bringing net outflows in the past two weeks to 2.9 billion rand, according to data from JSE Ltd., which operates the bond and equity markets.
South Africa needs foreign-investment inflows of about 17 billion rand a month to finance its current account deficit, according to Rand Merchant Bank, which registered 6.4 percent of gross domestic product in the third quarter.
“Foreigners continue to dribble out of the local bond market,” Cairns said in a note e-mailed to clients today.
The rand’s three-month implied volatility against the dollar has climbed 65 basis points in the past two weeks to 13.15 percent, indicating that options traders see bigger swings in the currency in coming weeks.