Cape Town - South Africa’s rand extended gains, strengthening for the first time in five days, after Moody’s Investors Service said the nation would probably retain its investment-grade credit rating.
Bonds pared declines.
South Africa’s debt levels are “manageable” and a pickup in demand from Europe and the US is “promising” for growth in 2014, Moody’s said in an e-mailed report today.
The nation’s rating will probably remain in the Baa range “for the foreseeable future,” it said. Moody’s rates South Africa Baa1, the third-lowest investment level, with a negative outlook.
“The government’s ratings reflect a relatively manageable debt position,” Moody’s New York-based analyst Kristin Lindow said in the statement.
“Higher domestic savings and investment rates would support a stable outlook in the near term, and potentially a rating upgrade in the medium term, as would sustainably stronger growth, restrained public debt accumulation and the maintenance of sound economic policies.”
The rand strengthened 1 percent to 10.6493 per dollar by 4:39 p.m. in Johannesburg, the best performance among 31 emerging-market and major currencies monitored by Bloomberg.
Yields on benchmark rand-denominated bonds due December 2026 were little changed at 8.28 percent after rising as much as four basis points, or 0.04 percentage point.
South Africa’s currency rebounded from a five-year low reached last week as technical indicators suggested the currency’s slump to a more than five-year low against the dollar had gone too far.
The stochastic oscillator for the rand versus the dollar climbed to 76 today, above the 70 threshold that indicates the currency may be oversold.
The rand’s relative-strength index rose to 73 on January 3, the highest since May, before dropping to 67 today, according to data compiled by Bloomberg.
The Federal Reserve releases minutes of its December meeting, when it decided to cut stimulus, on January 8.
“The rand has started the year under pressure thanks to Fed tapering,” John Cairns, a currency strategist at FirstRand Ltd.’s Rand Merchant Bank, said in an e-mailed note today.
“There should be some relief” from the weakening, he said.
The South African currency depreciated 0.7 percent on January 3 to 10.76 per dollar, the weakest level since November 2008, amid speculation the Fed will end its bond-buying program this year as the US economy recovers.
The central bank said on December 18 it would trim monthly bond buying by $10 billion this month. - Bloomberg News