Rand Strongest in World as Local Elections, BOE Boost Currency

  • S. African cities show reduced backing for ANC in local voting
  • Currency trades below 18 per pound first time since April ’05

The rand strengthened to a nine-month high against the dollar and traded below 18 per pound for the first time since April 2015 as results from South African local-government elections showed a swing toward the main opposition.

South Africa’s currency rand advanced 1.6 percent to 13.6886 against the dollar by 6:36 p.m. in Johannesburg, its strongest level on a closing basis since Oct. 27 and the best performance among 31 global currencies. The rand also led gains against the British pound, gaining 3 percent to 17.9807 after the Bank of England cut its main lending rate to the lowest on record as it tries to support the U.K. economy against fallout from Brexit. The move is likely to drive investors to high-yielding emerging market assets, such as South Africa’s bonds.

“The search for global yields is continuing and the rand has been a major benefactor of it,” said Wichard Cilliers, a trader at Treasuryone in Pretoria. “South Africa is a very liquid currency, the election is going smoothly too, that’s all benefiting the rand.”

South Africa’s currency returned 1.3 percent in the carry trade, the most in the world and nearly three times the next-best currency, the Australian dollar, rewarding investors who buy riskier assets with money borrowed from countries with lower rates. Orderly elections for municipal leaders held on Wednesday boosted sentiment toward South Africa, with the opposition Democratic Alliance increasing its share of the vote while the ruling African National Congress’ majority narrowed. With about 70 percent of results in, the DA was leading in Cape Town and Port Elizabeth and running neck-in-neck with the ANC in Johannesburg and Pretoria.

For a table of the latest election results, click here

Government rand-denominated bonds rallied, pushing the yield on the benchmark debt due December 2026 down 11 basis points to 8.55 percent, the lowest on a closing basis since Nov. 27. The yield on dollar debt due Sept. 2925 dropped 12 basis points to 3.94 percent.

“The election outcome seems to be supporting expectations of a change in major cities,” said Simon Quijano-Evans, emerging-market strategist at Legal & General Investment Management in London. “A wind of change is what markets have been looking for, however small it may be, given the sustained income inequality and continued drop in growth rates.”

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