Rand, bonds stronger on China comments

Johannesburg - South African government bonds and the rand firmed on Wednesday after China’s central bank said it would continue buying eurozone debt, encouraging investors to take on risky emerging market assets.

The rand, which is highly sensitive to eurozone sentiment, was at R7.6850 to the dollar in early trade, 0.49% firmer than Tuesday’s New York close of R7.7225. It may test the lower 7.60’s during the session, traders said.

“The rand gained support from a stronger euro overnight and stronger equity markets,” said David Gracey, a trader at Investec Securities.

“Basically that support came from comments by China that they stand ready to support Europe, so there is a little bit of risk-on. We see a range of R7.62 - R7.75,” he added.

China will continue to invest in eurozone government debt, its central bank governor said, calling on Europeans to produce more attractive investment products.

Tradition Analytics said the rand was resilient, despite some weakness over the last week.

“The fact that it has failed to crack above levels of R7.7800 yet again suggests that the notion of a weaker rand is not gaining traction with all in the market.

“Technical analysis shows that a bull flag formation may be building but any retreat back towards R7.6500 or below would simply reaffirm the prospect that the medium- to longer-term bias on the dollar/rand is still down.”

On the local front, December retail sales will be released at 11:00 GMT. Growth is expected to slow to 6.5% year-on-year from 6.8% in November, according to a Reuters survey.

On fixed income, the 2015 bond yield fell three basis points to 6.58% and that on the 2026 note was down by the same margin to 8.255%.

Local stocks looked set for a positive start, with the blue-chip Top 40 - (Tradeable) [JSE:J200] March futures contract up 0.6% before the start of trade at 07:00 GMT.