Rand Leads Currency Gains as SABMiller-Inflow Talk Sparks Rally

Updated on
  • Inflows from AB InBev deal may reach 100 billion rand: RMB
  • Currency also buoyed by speculation Fed won’t hike rates

South Africa’s rand strengthened to a one-month high against the dollar, leading global currency gains, amid speculation Anheuser-Busch InBev SA has started buying the currency to pay local shareholders for its $104 billion acquisition of SABMiller Plc.

The rand gained 1.5 percent to 13.7140 per dollar by 2:01 p.m. in Johannesburg, the most out of 31 emerging-market and major currencies tracked by Bloomberg, and bringing the advance this month to 7.4 percent. Yields on benchmark 10-year rand bonds were little changed at 8.6 percent after falling for two days, before the Federal Reserve’s policy statement later on Wednesday.

Inflows from the SABMiller purchase may amount to as much as 100 billion rand ($7.3 billion), John Cairns, a currency strategist at Johannesburg-based Rand Merchant Bank, said in an e-mailed note on Wednesday. AB InBev’s offer was accepted by SABMiller’s board on July 29, and faces its next hurdle when SABMiller’s shareholders vote next week.

‘Significant Help’

“We think it is possible that AB InBev started buying rand this week to pay for its SABMiller buyout of local shareholders,” Cairns said. “This would explain the rand gains in the last two days, although not the outperformance of last week. The bottom line: actual or speculated SABMiller-related flows will provide significant help to the rand for weeks to come.”

Emerging-market currencies advanced after the Bank of Japan adjusted its monetary stimulus program, fueling gains in Asian and European equities. About 80 percent of traders bet the U.S. central bank will refrain from raising interest rates later Wednesday.

“We have got the rumor, should I say, of the SABMiller inflows, and at the moment obviously the talk about the Fed tonight is dominating all of the thought processes,” William van Rijn, a currency trader at Nedbank Group Ltd., said by phone from Johannesburg. If the Fed leaves rates unchanged “we can see a continuation of the current price action in the rand. All of those factors are out there and I think they are starting to align in a positive fashion for the rand,” he said.

South Africa’s central bank will leave its policy rate unchanged at 7 percent on Thursday, according to all 27 analysts in a Bloomberg survey, maintaining the rand’s yield advantage over the dollar. Inflation slowed to below the upper end of the central bank’s 3 percent to 6 percent target band for the first time this year, the national statistics agency said in reports released Wednesday in the capital, Pretoria. The 5.9 percent rate in August leaves room for policymakers to continue to pause their tightening cycle.

The South African currency has recovered most of its losses sparked by a report that Finance Minister Pravin Gordhan is being investigated by police, raising concern his job is on the line and threatening the country’s investment-level credit rating. The probability of a downgrade is about a third, Moody’s Investors Service said yesterday, adding it was “confident” Gordhan would remain in his post.

“Once the political noise settles down, and in the current world environment, something like the rand should be doing well,” Jim Bryson, a currency trader at Rand Merchant Bank, said by phone. “It’s a high-yielding currency, so in the bigger picture the rand should be strengthening.”