South Africa’s Rand Gains Most in Two Weeks on U.S. Debt Talks

The rand strengthened the most in two weeks against the dollar as U.S. lawmakers pushed toward a deal to avoid a debt default and reopen the government, fueling demand for riskier assets including South African bonds.

The currency of Africa’s biggest economy extended gains after the country’s retail sales expanded more than estimated in August, a report showed today. Senate leaders are rushing to lock down an agreement to end the fiscal impasse, stepping in after House Republicans’ last-minute plan to avert a government default collapsed. Fitch Ratings Ltd. put the U.S. economy on watch for a possible credit downgrade, citing lawmakers’ inability to forge a deal.

“The market is expecting U.S. lawmakers to come up with a deal,” Michael Keenan, a currency strategist at Absa Group Ltd., said by phone from Johannesburg. “If you look at market positioning, there is scope for the rand to strengthen in the short term. The market is quite short of rand at this stage.”

The rand appreciated 0.9 percent to 9.8915 per dollar as of 4:14 p.m. in Johannesburg, the most since Oct. 2. Yields on benchmark 10.5 percent bonds due December 2026 dropped three basis points, or 0.03 percentage point, to 7.89 percent.

Retail sales in Africa’s biggest economy rose 3 percent in August from a revised 2.9 percent the previous month. The median estimate of 12 economists in a Bloomberg survey was for growth of 1.1 percent. Retail growth is still too slow to induce the central bank to raise interest rates, said Gina Schoeman, a Johannesburg-based economist at Citigroup Inc.

“An improvement in consumer spending is not necessarily an improvement in consumer health,” Schoeman said in an e-mail. “We don’t think the demand-pull is strong enough to push core inflation much higher and in turn, we don’t think the Reserve Bank will raise interest rates until the first quarter of 2015.”

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