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Johannesburg - The rand firmed to its strongest level in
three days against the dollar on Wednesday after Moody’s rating agency affirmed
Spain’s investment grade rating, calming fears Madrid would be downgraded to junk status.
However, the rand is likely to have its gains capped as
investors worry about the domestic labour unrest that has plagued South Africa
since August.
The rand strengthened to as much as R8.6645 in early trade
from a New York close of R8.6880 on Tuesday.
“It is somewhat of a relief that local markets have taken
direction from developments abroad given the domestic mining turmoil,” research
house Tradition Analytics said.
“The change of focus is however likely to be temporary as
the tensions in the mining industry rage on.”
The rand was at the bottom of the gainers against the dollar
in a basket of 20 emerging market currencies tracked by Reuters.
Government bonds rose, especially on the longer end, which
was boosted by a successful Treasury auction on Tuesday.
The yield on the 2015 bond dropped three basis points to
5.38%, while that on the 2026 issue gave up 5 basis points to 7.685%.
Longer-dated bonds had been pressured by a downgrade of
South Africa’s credit rating on Friday, which drove the R186/R157 yield spread
to a lifetime high on Monday.
However sentiment improved after the Tuesday auction which
saw foreign and local investors return to search for yield, which instilled a
little confidence in South Africa and propped the rand.
The spread has come back from a 239 basis point peak to 230
basis points on Wednesday.
Retail sales for August are due at 11:00 GMT and economists expect a slight improvement to 4.6% growth in August, compared with 4.2% previously.
