S.Africa's rand reaches 2-week high, bonds firmer

JOHANNESBURG: South Africa's rand rallied as much as two percent to a two-week high against the dollar on Wednesday, partly buoyed by comments from Finance Minister Pravin Gordhan that the government was ready to use forex reserves to stabilise the market.

A stronger than expected factor output number for August also gave the currency a lift, although analysts said it was most probably a blip as the key sector remains under stress, with dovish comments from the central bank leaving the door open for a rate cut.

Government bonds edged firmer regardless, taking their cue from the stronger currency, although traders said the continued steepness of the yield curve showed a reluctance for fund managers to buy into the longer end of the debt market.

The rand hit a session high of 7.7725 against the dolalr, its strongest level since Sept. 28, and was 1.6 percent firmer on the day at 7.8020 by 1827 GMT.

"When we had the Finance Minister come out and say that we wouldn't hesitate to use reserves not necessarily to intervene but just to smooth things out that was viewed as a positive for the currency and consequently into the bonds as well," said Ashley Dickinson, a bond trader at Renaissance BJM.

Hopes that Slovakia would reach a deal to expand the euro zone's rescue fund also boosted sentiment among investors that have shunned emerging markets on worries of a default by some debt-ridden European countries.

"With Slovakia probably coming to the party on the euro zone rescue package I think we'll see the risk-on trade probably gaining a little bit of momentum again," a Johannesburg trader said.

The yield on the 2015 bond fell 5.9 basis points to 6.655 percent and that on the 2026 issue closed 3.8 basis points lower at 8.35 percent.

"The worrying thing remains the steepness of the yield curve which tends to probably imply ... that the local investors are still not convinced that the market is a buy, otherwise they would be buying the longer-dated end of the curve. Whatever foreign activity we see tends to be focused on the short-dated of the curve as well," Dickinson said.