South Africa’s Rand Cracks 12 per Dollar First Time Since ’15 as Optimism Grows

JOHANNESBURG (Capital Markets in Africa) – South Africa’s rand traded below 12 per dollar on Wednesday for the first time since May 2015, extending a rally sparked by an improving domestic political environment and supported by global risk-on sentiment and the greenback’s retreat.

The currency advanced as much as 0.9 percent to 11.9265 per dollar, and traded 0.7 percent stronger at 11.9462 by 11:52 a.m. in Johannesburg. That brings gains in the past three months to 15 percent, the most out of 31 major currencies tracked by Bloomberg. The yield on rand-denominated government bonds due December 2026 fell four basis points to 8.32 percent, the lowest since March.

The election of Cyril Ramaphosa as head of the ruling African National Congress in December, setting him on a path to take over from President Jacob Zuma, has fueled optimism South Africa may avert further credit-rating downgrades as the new leadership takes steps to root out corruption and stimulate the ailing economy. Inflows into the nation’s stocks market are running at recordlevels.

“Investors are loving us at the moment,” said Phillip Pearce, a trader at TreasuryOne Ltd. in Johannesburg. “The dollar is taking a pounding and global markets are still on the hunt for yield. There’s not a lot of risk going now. South Africa seems like a good bet.”

The rand could appreciate to as low as 11.50 per dollar if Zuma is removed from office, Pearce said. The probability of the rand reaching that level this quarter rose to 49 percent on Wednesday, from 19 percent a month ago, according to Bloomberg’s forecast model based on prices of options to buy or sell the currency.

‘Better Space’
South Africa is in a “much better space” now than when previous credit-rating actions took place, and can avert further downgrades this year as lawmakers assert their authority to hold the executive to account, South Africa’s central-bank governor, Lesetja Kganyago, said on Wednesday.

S&P Global Ratings and Fitch Ratings Ltd. cut the country’s debt to junk in 2017 after the removal of Pravin Gordhan as finance minister in March. Moody’s Investors Services put the nation on review for a downgrade in November. A reduction of the local-currency bond rating would trigger an exclusion of South Africa’s rand debt from Citigroup Inc.’s World Government Bond Index, sparking a selloff by investors tracking the gauge.

“A cyclical recovery is under way,’’ Kganyago said in an interview with Bloomberg TV at the World Economic Forum in Davos. Potential investors are asking “where are the opportunities lying. South Africa is reasserting itself,” he said.

Other South African assets joined in the rally. The yield on $2 billion of 2028 Eurobonds dropped for a third day, falling one basis point to 4.7 percent. The benchmark stock index climbed 0.1 percent to a record on a closing basis.

Source: Bloomberg Business News