Rand stronger against US dollar

Published Jun 20, 2014

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Johannesburg - South Africa's rand ended the week firmer against the dollar, continuing to ride on better-than-expected local economic data and dovish Federal Reserve remarks earlier in the week.

Optimistic comments from strike-hit mining companies that a crippling work stoppage in the platinum belt is nearing an end also provided some positive sentiment.

Dealers said Friday's trading session was quiet, and without much to drive it the rand remained near its recent firmer levels.

The unit has tested levels around 10.60 this week during an emerging market-wide rally, after dovish central bank comments from the United States, and as South Africa's current account data surprised with a smaller-than-expected shortfall in the first quarter.

At 16:31 SA time, South Africa's currency was up half a percent at 10.6970 to the dollar, coming off a session high of 10.6700.

“Going into the weekend people are squaring up their positions. The current account data earlier in the week is slightly supportive for the rand so guys are just taking (some) positions off,” said David Gracey, a currency trader at Investec.

Signals that a 20-week strike in the platinum mines is nearing an end was also lending support to the rand. Miners were trickling back to work on Friday in anticipation work would resume.

Yields on government bonds ticked up two basis points to 6.665 percent on the 2015 note and three basis points to 8.345 percent on the benchmark 2026 issue.

An auction of government inflation-linked paper earlier saw yields extend a lower trend and demand pick up at the sale of 800 million rand ($75 million) worth of 2025, 2038 and 2050 bonds linked to the consumer price basket.

CPI data on Wednesday had shown May inflation shot above market and central bank expectations, adding to views that the central bank could hike interest rates at a policy-setting meeting next month.

“After a sharp fall in total bids in the two auctions previously this month, bidding participation has ramped up once more to a six-week high at today's inflation-linked bond (ILB) auction,” Tradition Analytics noted.

“A fragile rand ensures that demand for ILB's as both an inflation hedge and speculative tool is likely to remain in place, but CPI is expected to begin topping out as we head further into H2,” Tradition said, adding this could mean the outperformance of inflation-linked debt starts to lessen. - Reuters

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