Rand Snaps Two-Day Loss as Stocks Rally on U.S. Stimulus Plan

By Garth Theunissen

Dec. 8 (Bloomberg) -- South Africa’s rand rose against the dollar as the nation’s stocks rallied with those around the world after the U.S. and India unveiled economic stimulus packages to ease the effects of a global recession.

The rand snapped a two-day decline after U.S. President- elect Barack Obama pledged the biggest public works program since the 1950’s and India cut interest rates and increased government spending. South Africa’s currency also rallied on speculation interest-rate cuts will bolster Africa’s biggest economy.

“The fiscal stimulus being poured into the global economic system is very significant for growth prospects,” said George Glynos, managing director in Johannesburg at Econometrix Treasury Management, which advises clients on bond and foreign- exchange transactions. “It’s resulted in positive equity sentiment which has dragged down risk aversion, and that’s been good for riskier assets like the rand.”

The rand advanced as much as 1.4 percent to 10.1610 per dollar and was at 10.2040 by 1:54 p.m. in Johannesburg, from 10.3050 on Dec. 5. It weakened 0.3 percent to 13.1442 per euro.

It will trade in a range of 10.05 to 10.35 per dollar today and will “strengthen gradually towards year-end, potentially reaching a level of 9.50 by the start of 2009,” Glynos said.

“The rand is undervalued at the moment so exporters should take advantage of current levels to cash in foreign earnings,” he said. “We recommend traders sell dollars into any rand rally at the moment.”

Stock Gains

Stock markets climbed from Tokyo to Johannesburg after Obama said on Dec. 6 he’s planning the biggest public investment program since President Dwight D. Eisenhower created the interstate highway system to create and preserve 2.5 million jobs in the world’s biggest economy. Governments around the world introduced measures this year to buttress their economies against the worst financial crisis since the Great Depression.

South Africa’s FTSE/JSE Africa All Share Index of equities climbed as much as 5.3 percent, the biggest intraday gain since Nov. 25. Europe’s Dow Jones Stoxx 600 Index added 5 percent and the MSCI Asia Pacific Index rose 4.3 percent. U.S. stock-index futures advanced.

Indian Prime Minister Manmohan Singh said his government plans to allocate an extra 200 billion rupees ($4 billion) as part of a 3-trillion-rupee spending plan for the rest of the financial year ending March 31. The Reserve Bank of India reduced borrowing costs on Dec. 6 for the third time since October.

Rates Outlook

The rand also strengthened on bets the South African Reserve Bank will lower the repurchase rate by a half point to 11.5 percent this week, according to 12 of 17 economists surveyed by Bloomberg. Ten interest-rate increases since June 2006 sapped consumer spending, helping push the retail industry into recession and restricting economic growth to a decade low.

Central banks in the euro region, the U.K., Sweden, New Zealand, Denmark and Indonesia last week reduced their key rates to spur economic growth.

Government bonds fell, with the yield on the benchmark 13.5 percent security due September 2015 rising two basis points to 8.11 percent. The yield on the 13 percent note maturing in August 2010 climbed three basis points to 7.97 percent. Yields move inversely to bond prices.

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