BLBG: South African Rand Rises Versus Dollar on U.S. Bailout Optimism
By Garth Theunissen
Oct. 1 (Bloomberg) -- South Africa's rand rose against the dollar on speculation U.S. lawmakers will salvage a proposed $700 billion bank-rescue package, stoking demand for higher-yielding, emerging-market assets.
The rand advanced for a second day after senators set a vote for tonight on legislation that will give U.S. Treasury Secretary Henry Paulson authority to buy troubled assets from ailing financial institutions in the world's biggest economy. The bailout was rejected by the House of Representatives two days ago.
``The possibility of the bailout package being approved is positive for global risk appetite,'' said Jon Harrison, an emerging-markets currency strategist at Dresdner Kleinwort in London. ``This helps higher-yielding currencies.''
The rand jumped as much as 0.7 percent to 8.2288 per dollar and was at 8.2765 by 4:19 p.m. in Johannesburg, from 8.2865 yesterday. It also rose versus 11 of the 16 most-actively traded currencies monitored by Bloomberg, climbing 0.8 percent against the euro to 11.5856.
South Africa's currency will trade ``relatively close to current levels'' in three months and will be at 8.28 per dollar by year-end, Harrison predicted. It will show ``considerable weakness'' next year and will fall to 8.75 in the next 12 months, he said.
``The bias is for further rand weakness in the short-term,'' Michael Keenan, a currency strategist at Standard Bank Group Ltd. in Johannesburg, said in an interview with Bloomberg Television. ``However, it's dropped a long way in a short time so it won't weaken as aggressively as it has recently.''
Harrison recommends traders adopt ``short rand, long Brazilian real'' positions. A short position is a bet an asset will fall in value, while a long position is the opposite.
The rand may weaken to at least 9 rand per dollar before the end of the year as investors shun emerging-market assets amid global financial turmoil, John Cairns, head of foreign-exchange research in Johannesburg at Rand Merchant Bank, wrote in a client note yesterday. He maintains a forecast that the rand will end the year at 8.50 against the dollar, still more bearish than all but two of 21 analysts surveyed by Bloomberg.
South Africa's currency was supported by gains in the prices of gold and platinum, the nation's biggest export earners. Gold climbed 1.3 percent to $882.22 as concerns over weakening U.S. growth stoked demand for the metal as an alternative investment. Platinum rebounded from a two-year low reached yesterday, adding 1.3 percent to $1,023.80 an ounce.
South Africa produces almost 80 percent of the world's platinum and about 10 percent of its gold, typically causing the rand to move in tandem with the price of the metals.
Government bonds rose, with the yield on South Africa's benchmark 13.5 percent security due September 2015 losing 1 basis point to 8.85 percent. The yield on the 13 percent note maturing in August 2010 dropped 2 basis points to 9.44 percent. Yields move inversely to bond prices.
To contact the reporter on this story: Garth Theunissen in Johannesburg firstname.lastname@example.org