Rand consolidates after gains, bonds firmer

2012-01-27 19:39

Johannesburg - South Africa's rand briefly touched new three-month highs versus the dollar on Friday, but may have limited scope for further gains as nagging fears about euro zone debt temper this week's wave of improved risk appetite for high-yield assets.

Government bonds tracked the rand, with foreigners buying local debt, which offers higher yields than U.S. Treasuries.

By 1557 23 GMT the rand was at 7.7847 to the dollar, up 0.5 percent from Thursday's close. It touched a session high of 7.7490 earlier, its strongest level against the greenback since Oct. 31 last year.

But Friday's gains were muted compared to the previous day, when the rand jumped about 1.5 percent in a global rally spurred by prospects of interest rates in the world's biggest economy staying near zero for some time.

This also supported local bonds, with the yield on the highly liquid three year bond dipping 2.5 basis points to 6.45 percent on Friday, while that for the longer-dated 2026 issue fell 8.5 basis points to 8.145 percent.

"A combination of a stronger rand and a lower interest rate outlook in the United States have supported the local markets," ETM analyst Luke Barnett said.

"There's definitely an improvement in market sentiment but still a lot of caution. The rand will probably open at similar levels on Monday."

Data on private sector credit extension and the latest purchasing managers' index due out next week will shed further light on the domestic economic outlook, but markets will likely seek most of their direction from global trends.

"Most of the indicators are assuming less market significance than usual due to the unlikelihood of monetary tightening in the face of fragile global demand," Investec analyst Annabel Bishop said in a research note.

The rand should tread an 7.50-8.10 range against the dollar next week, and trade between 9.90 and 10.50 versus the euro, Bishop said.