Rand Rallies From 2-Week Low as Traders Judge Losses Excessive

By Garth Theunissen

Nov. 13 (Bloomberg) -- South Africa's rand snapped a two-day loss against the dollar on bets its 34 percent drop this year was excessive given prospects for growth in Africa's biggest economy.

The rand rallied from a two-week low earlier as traders judged it weakened too far given government forecasts that South Africa's $278 billion economy will expand 3 percent or more in the next three years. The currency also gained after gold, the country's biggest export, rebounded from a near its lowest since Oct. 27.

``The rand's looking very over-sold and is simply rebounding after a very big drop,'' said Brigid Taylor, a senior currency trader in Johannesburg at Rand Merchant Bank. ``Investors have underestimated the growth potential of emerging markets like South Africa. Once the dust settles they're going to realize we're still a good growth story.''

The rand rose as much as 1.4 percent to 10.3243 per dollar and was at 10.3657 by 12:55 p.m. in Johannesburg, from 10.4700 yesterday. Earlier it fell as much as 1.6 percent to 10.6375.

South Africa's currency will trade at 9.5 per dollar by year-end, Rand Merchant Bank predicted. The Johannesburg-based lender earlier forecast it would rise to 8.5 per dollar.

``There are just too many long-dollar, short-rand positions and those are unwinding now,'' said Taylor. A long position is a bet a currency will strengthen, while a short bets on weakness.

South Africa's Treasury forecasts the economy will grow 3.7 percent this year, 3 percent in 2009 and 4 percent in 2010, according to Finance Minister Trevor Manuel's mid-term budget statement released Oct. 21. The economy grew 5.1 percent in 2007.

`Thin Market'

``We're seeing an unwinding of short-rand positions because South Africa's relatively high interest rates make it painful to keep placing one-way downward bets on the currency,'' said Michael Keenan, a currency strategist at Standard Bank Group Ltd. in Johannesburg. ``The market is also very thin at the moment so even small trades can cause swings in the rand.''

South Africa's 12 percent benchmark interest rate is 900 basis points higher than the U.K.'s and 875 basis points more than the euro-region's. It's also 1,170 above Japan's key rate.

The prices of gold, which rivals platinum as the nation's biggest export, rose as much as 1 percent to $719.20 an ounce. Platinum jumped 1.7 percent to $834.25 an ounce, snapping a two- day decline.

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 metals' prices.

Government bonds fell for a third day, with the yield on the benchmark 13.5 percent security due September 2015 adding 11 basis points to 8.94 percent. The yield on the 13 percent note maturing in August 2010 gained 7 basis points to 9.34 percent. Yields move inversely to bond prices.

To contact the reporter on this story: Garth Theunissen in Johannesburg gtheunissen@bloomberg.net