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Rand bolstered by stimulus hopes

Jul 26 2012 09:33

Johannesburg - The rand steadied against the dollar on Thursday after rallying 1.5% overnight due to strong demand for local bonds by foreign accounts, and could rally further on hopes of additional stimulus for struggling leading economies.

The yield for the three-year paper was down two basis points at 5.37% in early trade and that for the 14-year issue fell 4.5 basis points to 7.29%.

The rand briefly touched a session high of 8.3955/dollar, close to Wednesday’s strongest level of R8.39, and was barely changed at R8.4000 by 06:53 GMT.

“The rand has come off its recent weakest levels on the back of some bond purchases and the euro has also rallied a bit,” a Johannesburg-based trader said.

“You’re going to start to run into dollar support at these levels under R8.40, but certainly if bonds and equities carry on performing well then we should find some sellers again around R8.45/46.”

About R530m flowed into the local bond market from non-resident accounts on Wednesday, stock market data showed.

The rand could also benefit from speculation that global authorities might provide additional and coordinated stimulus measures to counter dismal global growth and the deepening eurozone debt crisis, Absa Capital said in a note.

“Given the concerns in many of the developed economies, there is also a growing argument that investors could flock to emerging markets for safety and if such decoupling did occur, the rand is likely to be one of the biggest beneficiaries,” it said.

The rand tends to take the brunt of global market volatility because South Africa’s markets are very liquid, making it easy for portfolio investment to flow in and out rapidly.

The currency plunged to a three year low of R8.71/dollar in early in June as investors fearing contagion from the eurozone dumped emerging market assets traditionally perceived as carrying higher risk.

bonds  |  rand  |  markets



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