Rand Rebounds From 4 1/2-Year Low on Overdone SignalJaco Visser and Robert Brand
South Africa’s rand rebounded from a 4 1/2-year low on speculation the biggest selloff among emerging-market currencies over the past four days was overdone.
The rand weakened as much as 1 percent to 10.5389 per dollar, the lowest intraday level since March 2009. It traded 0.2 percent stronger, the first gain in four days, at 10.4174 per dollar by 6:35 p.m. in Johannesburg, paring its decline this week to 2.3 percent, the most out of 24 emerging-market and 16 major currencies tracked by Bloomberg. Its relative-strength index versus the dollar rose to 71 today, above the 70 threshold that suggests a security is oversold.
“A weakening to above 10.50 rand per dollar was excessive,” Peter Attard Montalto, a London-based strategist at Nomura Holdings Inc., said in an e-mailed response to questions. “It was only a short tactical run. With the rand above 10.50 per dollar, it would also attract exporter interest.”
The rand’s slide has been fueled by the longest stretch of outflows from the South African bond market since before the 1998 Russian debt default. Foreign investors dumped South African bonds for an 11th straight day yesterday, the longest streak since June 1998, according to JSE Ltd. data compiled by Bloomberg. The nation relies on capital inflows to fund its current-account gap, which swelled to a four-year high in the third quarter.
Yields on benchmark bonds due December 2026 dropped five basis points, or 0.05 percentage point, to 8.45 percent.
“We’re seeing evidence of the continued unwind of risky assets, and it’s all to do with growing concern about Federal Reserve tapering,” Michael Keenan, a South Africa strategist at Barclays Plc’s South African unit, said by phone from Johannesburg. “Because South Africa is so dependent on capital inflows, this will hurt the rand. It’s still got a long way to go. We could see more selling.”
Foreign investors sold 36.3 billion rand ($3.5 billion) of South African stocks and bonds since the beginning of November, according to JSE data. The nation needs average inflows of 19.5 billion rand a month to plug its current-account shortfall, according to Standard Bank Group Ltd. The deficit widened to 6.8 percent in the third quarter from 5.9 percent the previous three months, the Reserve Bank said on Dec. 3.
The rand slumped to a five-year intraday low against the euro and stayed weaker after European Central Bank and the Bank of England left benchmark rates unchanged. It was last trading 0.4 percent weaker at 14.2468 against the euro.
The rand is due for a correction based on technical measures, according to Mohammed Nalla, head of strategic research at Nedbank Group Ltd.
“It’s overdone, and I expect it to pull back to the 10.20s” against the dollar, Nalla said by phone from Johannesburg. “A lot of the bad news is probably already priced in.”
The rand’s three-month implied volatility versus the dollar rose to as much as 15.4 today, the highest since Oct. 3, suggesting that options traders predict wider swings in the currency in coming months.