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SA rate bets reduced as rand heads for quarterly gain

But currency still vulnerable to politics and US data.

The rand headed for its first quarterly gain since 2012 and South African bonds and stocks rose as dovish comments from Federal Reserve chair Janet Yellen sparked a shift toward riskier assets.

The currency advanced to the strongest level on a closing basis since December 8, a day before President Jacob Zuma fired Finance Minister Nhlanhla Nene, sending the rand tumbling. The FTSE/JSE Africa All Shares Index rose 1.6% and yields on government rand-denominated debt due in 2026 fell 18 basis points to 9.18%, the lowest on a closing basis since March 17.

The gains on Wednesday, the best in emerging markets behind Malaysia’s ringgit, cut bets the South Africa Reserve Bank will raise borrowing costs to slow price growth and meet its inflation target. Further appreciation may be limited, said Ion de Vleeschauwer, chief dealer at Bidvest Bank.

“I just don’t think fundamentally we justify such a strong currency,” de Vleeschauwer said. “Locally there’s just too much negativity still and too much uncertainty about our economic condition for the rand to rally that much.”

A measure of emerging-market currencies headed for the best month since 1998 on optimism capital inflows can be sustained after Yellen on Tuesday said US policymakers must act “cautiously” as they look to raise rates.

Decline Reversed

The rand which had been on course for a quarterly decline of 0.1% against the dollar prior to Yellen’s remarks, traded up 1.5% to 14.94 as of 3:07pm in Johannesburg. Traders have trimmed expectations the central bank will increase the benchmark rate to 7.25% at its next meeting in May after lifting it to 7% at its last meeting on March 17.

“We’re not yet in technically overbought territory, but we’re close,” said Mohammed Nalla, head of strategic research at Nedbank Group in Johannesburg. He expects “resistance” from dollar buyers and local news to prevent further rand appreciation.

A special police unit that has given Finance Minster Pravin Gordhan until Wednesday to answer questions about an alleged rogue unit within the revenue service agency. 

South Africa releases February trade data on Thursday, while the Constitutional Court is expected to rule on the same day on the powers of the graft ombudsman, who recommended President Jacob Zuma repay some of the public funds used to renovate his private homestead. US payrolls data on Friday may also affect emerging-market currencies and the rand.

© 2016 Bloomberg

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