Rand Gains in Week on Stimulus Bets as South African Yields Fall

The rand strengthened for the second week in three on speculation global central banks will keep economic stimulus. South African bond yields fell.

The currency was little changed at 9.9981 per dollar as of 6:05 p.m. in Johannesburg for a weekly gain of 2 percent. Yields on government bonds due December 2026 rose two basis points, or 0.02 percentage point, to 8 percent, compared with 8.11 percent a week ago. Foreign investors bought a net 603 million rand ($60 million) of South African bonds yesterday, bringing net purchases this month to 2.55 billion rand after sales in June and May, according to JSE Ltd. data.

European Central Bank executive board member Vitor Constancio said that the euro area’s slow economic recovery “implies that monetary policy has to stay accommodative for a longer period of time.” The U.S. Federal Reserve and the Bank of Japan both indicated this week they will maintain monetary stimulus. This comes as South African manufacturing growth slowed more than estimated in May and mining output fell.

“Questions arise as to whether this will encourage fresh flows into emerging markets, or more to the point, into South Africa,” Mohammed Nalla, head of strategic research at Nedbank Group Ltd. in Johannesburg, said in e-mailed comments today.

The rand will trade from 9.80 to 10.30 per dollar for “some time” before breaking to 10.60, Guillaume Salomon, a London-based emerging-markets analyst at Societe Generale SA, said in an e-mailed reply to questions today.

Manufacturing Slows

Factory output rose 2.2 percent, less than median of 2.9 percent of 13 economists surveyed by Bloomberg, after gaining a revised 7.1 percent in April, Pretoria-based Statistics South Africa said yesterday. Mining output in Africa’s biggest gold producer fell 0.7 percent in May from a year earlier, the agency said in a separate report.

Mining accounts for more than half of South Africa’s exports. Gold dropped as much as 1.4 percent, platinum declined 0.7 percent and copper fell for the first time in three days amid concern that slowing economic growth in China will hurt demand for metals.

“Against a backdrop of lower commodity prices and continued cost pressure from labor and electricity markets, it is difficult to see how activity in the mining sector will manage to pick up meaningfully over the next few months,” Theuns de Wet, head of global markets research at Rand Merchant Bank in Johannesburg, said in e-mailed comments. “The outlook for manufacturing is also downbeat if one considers slowing domestic demand and labor cost pressures in this industry.”

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