Johannesburg - The rand posted its biggest gain in a month, paring a fourth consecutive weekly decline, as investors bet the currency’s drop to a four-year low was overdone and as the euro rose to an 11-month high.
The rand strengthened as much as 0.8 percent to R8.9883 a dollar, and was bid at R8.9594 at 5pm in Johannesburg, 9.51c firmer than on Thursday. It weakened 1.4 percent last week. Yields on benchmark 10.5 percent bonds due December 2026 declined 3 basis points to 7.36 percent, after climbing 15 basis points over the four previous sessions.
The rand has slumped almost 6 percent this year, the worst performer of 25 emerging market currencies, as accelerating inflation added to concern about slowing growth amid labour protests and civil unrest.
Technical indicators suggest the decline has gone too far, according to Ion de Vleeschauwer, the chief dealer at Bidvest Bank.
“The rand is a bit oversold,” he said on Friday. It was also benefiting from the euro’s gains against the dollar. “You can expect a bit of a correction.”
The euro gained for a second day, advancing 0.3 percent to e1.3410 against the dollar, the strongest since February 29.
The rand often moves in tandem with the euro, with a statistical correlation of 0.6 over the past year. A value of 1 would mean they moved in lock step.
The rand’s relative strength index against the dollar was at 25.5 on Thursday, below the 30 level that signals the currency is oversold.
A stochastic oscillator for the rand versus the dollar was also below the 30 threshold that signals the currency may have depreciated too quickly and is poised for a rebound. The measure, which tracks the price of a security relative to its highs and lows during a particular period, has been below 30 since January 15.
The rand might resume its fall in coming weeks as outflows from the nation’s bond market weigh on the currency, John Cairns, a currency strategist at Rand Merchant Bank, said. Foreign investors sold a net R420 million of local bonds on Thursday, bringing net outflows in the past two weeks to R2.9bn, according to JSE data.
South Africa needs foreign investment inflows of about R17bn a month to finance its current account deficit, according to Rand Merchant Bank, which registered 6.4 percent of gross domestic product in the third quarter.
The rand’s three-month implied volatility against the dollar has climbed 65 basis points in the past two weeks to 13.15 percent, indicating that options traders see bigger swings in the rand in coming weeks. – Bloomberg
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