Rand reaps rewards of weaker US, China data

Johannesburg

The rand climbed to its strongest levels in two weeks against the dollar, taking advantage of soft economic data out of the world’s two biggest economies to gain by over half a percent.

The rand was trading at a 2-week low of R10.5695/$ by 15:30 GMT, 0.52 percent off its New York close. The rand surprised by turning stronger after domestic retail sales for June came in flat at 0.0 percent year-on-year, sharply undershooting market expectations of a 0.4% dip.

“The local data was overshadowed by US data, which came in much softer than expected,” said economist Jana van Deventer of ETM Analytics.

“As a result we have seen a selloff in the dollar against most major currencies, and that has provided support to the rand.”

Retail sales in the world’s largest economy ticked up by only 0.2 percent in June, suggesting that thirdquarter growth in the US, and consumer spending along with it, were likely pull back.

Data from China, South Africa’s second-biggest trade partner, showed retail sales in July had grown less than expected. The amount of money flowing into the Chinese economy also slowed, to its lowest level in nearly six years.

Signs of downside pressure on Chinese growth is of concern to rand traders given the implications for domestic exports, market watchers said. Unexpectedly weak growth in investment, retail sales and bank lending in July all pointed to growing vulnerabilities in the world’s second-largest economy. Government bonds tracked the rand stronger, with yields on both benchmarks falling. Yields on 2015 paper shed 2.5 basis points and on 2026 paper 0.5 basis points, to 6.665 percent and 8.315 percent respectively.

Meanwhile, South Africa’s retail sales were flat at 0.0 percent yearon- year in June, sharply undershooting market expectations and compared with a revised 2.6 percent expansion in May. Economists had forecast retail sales would increase by 2.0 percent compared with last year. On a month-on-month basis, sales were down 0.4 percent in June, and rose 1.5 percent in the quarter to June compared with the same period in 2013.

– Reuters

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