South African Rand Rises Versus Dollar as Gold, Platinum Climb

Posted 23 July 2008 @ 01:26 am EET     Print     Reprint     E-Mail     Comments

Johannesburg (IBTimes.com) - South Africa's rand rose against the dollar as gold and platinum advanced, boosting earnings from the country's biggest exports.

The rand traded near its strongest level in more than seven weeks after gold rose as much as 1.1 percent for a second day of gains and platinum climbed as much as 2.2 percent to the highest level since May 2, snapping a six-day decline. South Africa produces about 10 percent of the world's gold and almost 80 percent of its platinum.

``The rand is steady along with commodity prices,'' said Jim Bryson, head of foreign-exchange trading at Rand Merchant Bank in Johannesburg. ``In the absence of any major events, it should continue to strengthen as long as commodity prices remain relatively firm.''

The rand strengthened as much as 0.5 percent to 7.5324 per dollar and traded at 7.4991 by 5:54 p.m. in Johannesburg, from 7.5675 yesterday. Against the euro, it added 0.4 percent to 12.0024. The currency has lost 9 percent versus the dollar this year and 17 percent against the euro.

The rand offered the best carry-trade returns today of the most-active emerging-market currencies, Bloomberg data showed. It was also the best performer against the Japanese yen and the Swiss franc, two popular funding currencies for such trades.

``The rand has been stuck in a range today but there has been some carry-trade activity,'' said Russell Lamberti, an economist at Econometrix Treasury Management, which advises clients on bond and foreign-exchange transactions in Johannesburg. ``In the medium term, it still offers some carry.''

In carry trades, investors borrow a currency at a low interest rate and convert the proceeds into one they can lend out for a higher return, earning the spread between the two. They take the risk that currency moves will erase their profit. South Africa's main interest rate is 1,050 basis points above Japan's and 925 basis points higher than Switzerland's.

The South African Reserve Bank, led by Governor Tito Mboweni, has lifted borrowing costs 10 times since June 2006 to curb inflation that has exceeded its 3 percent to 6 percent target rate for 14 consecutive months. Inflation quickened to 10.9 percent in May, the fastest pace since November 2002.

South African government bonds gained, with the yield on the benchmark 13.5 percent security due September 2015 losing 2 basis points to 9.90 percent. Yields move inversely to bond prices.