Rand, Rupiah Gain as Yield Hunt Lifts Emerging Currencies

Higher-yielding currencies climbed against the dollar as the prospects of higher interest rates in Indonesia and Malaysia and an end to a labor dispute in South Africa boosted demand for emerging-market assets.

The yen gained for a third day and U.S. Treasuries advanced as a drop in stocks stoked demand for haven assets. New Zealand’s dollar surged to the highest in almost three years as Fitch Ratings raised the nation’s outlook to positive. The Malaysian ringgit reached the strongest since November. Richmond Federal Reserve Bank President Jeffrey Lacker dropped his previous expectation for more robust growth before the central bank releases minutes of its June 17-18 meeting tomorrow.

“It’s intriguing that EM currencies are up on a day equities are going down -- the market thinks the turn in the equity market isn’t seen as likely to play out in a big way,” Alan Ruskin, the global head of Group of 10 foreign exchange at Deutsche Bank AG in New York, said in a phone interview. “Currencies are taking their cue from global growth.”

South Africa’s rand climbed 0.9 percent to 10.6827 per dollar as of 5 p.m. New York time after jumping as much as 1 percent, the biggest gain since June 18. The dollar weakened 0.3 percent to 101.57 yen and was little changed at $1.3612 per euro. The 18-nation common currency fell 0.2 percent to 138.27 yen.

‘Bottomed Out’

“Sustained acceleration of growth to something over 3 percent in the near future is unlikely,” Lacker said in a text of his speech today in Charlotte, North Carolina. Inflation appears to have “bottomed out,” and the Fed will need to withdraw stimulus at the right time to keep inflationary pressures from emerging.

Policy makers cut monthly debt purchases to $35 billion at their last meeting, down from $85 billion last year. They left the target rate for overnight lending between banks in the range of zero to 0.25 percent, where it has been since December 2008.

A gauge of 20 major emerging-market currencies gained 0.2 percent to 92.91, the biggest rally in almost three weeks.

“Idiosyncratic factors are supporting specific markets in trade today,” said Eimear Daly, the head of market analysis at London-based broker Monex Europe Ltd. “Easing political concerns are supporting some emerging markets while an improving growth outlook is helping to keep the Aussie and kiwi bid.”

The rand strengthened for the first time in three days against the greenback as the union leading a walkout by 220,000 metalworkers was close to agreement with employers on wage increases.

Rupiah Gains

The South African currency is the third-worst performer versus the dollar among 24 emerging-market peers in the past three months as strikes and production disruptions have adversely affected the nation’s economy, denting investor confidence and curbing exports.

Indonesia’s rupiah appreciated to the strongest in more than two months on speculation market favorite Joko Widodo will win the nation’s presidential election tomorrow.

The currency climbed 0.7 percent to 11,626 per dollar after touching 11,605, the strongest since May 30.

Australia’s dollar rose for a third day after a National Australia Bank Ltd. measure of business confidence rose to 8 in June, matching its February level and the highest since a reading of 9 in January. The Aussie strengthened 0.3 percent to 93.99 U.S. cents.

Kiwi, Ringgit

The kiwi advanced for a second day as Fitch also affirmed New Zealand’s credit rating at AA, two grades below the top rating, citing a credible plan to lift the fiscal surplus and supportive macroeconomic prospects.

The South Pacific nation’s currency appreciated 0.3 percent to 87.88 U.S. cents after reaching 88.06, the highest since August 2011.

The Reserve Bank of New Zealand raised interest rates twice last quarter, boosting what was already the highest borrowing benchmark among major developed economies. A Credit Suisse Group AG index estimates policy makers will add 92 basis points to the 3.25 percent cash target over 12 months.

In Asia, Malaysia’s ringgit rose as 14 of 19 economists surveyed by Bloomberg News predicted Bank Negara Malaysia will boost the benchmark rate to 3.25 percent from 3 percent on July 10. The currency climbed 0.1 percent to 3.1741 per dollar after appreciating to 3.1680, the strongest since Nov. 1.

Low Volatility

“Foreign-exchange volatility is low, major central banks are not contemplating rate hikes anytime soon and data generally continues to edge higher -- an environment that should suit carry well,” said Henrik Gullberg, a currency strategist at Deutsche Bank AG in London. “In the run-up to the Fed minutes, there is little to suggest carry good-feel should not continue. In Asia, we are also seeing the ringgit benefiting from increased rate expectations.”

Currency dealers often use a strategy known as carry trades that exploit differences in global interest rates to generate profits.

Japan’s finance ministry said today the nation had a current-account surplus of 522.8 billion yen in May, reaching the most in three months and beating economist forecasts for a 417.5 billion yen gap.

Demand for the yen as a haven currency rose as the Standard & Poor’s 500 Index fell 0.7 percent, a second day of declines after closing at a record high July 3.

U.S. Treasury benchmark 10-year note yields fell six basis points, or 0.06 percentage point, to 2.56 percent, according to Bloomberg Bond Trader data.

The yen climbed 0.7 percent in the past month, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. The dollar lost 0.3 percent and the euro fell 0.2 percent. New Zealand’s currency gained 3.5 percent, the best performer.

Before it's here, it's on the Bloomberg Terminal.