South Africa's rand gains vs dollar, drags yields down-20130831

August 31, 2013
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South African bank notes featuring an image of former South African President Nelson Mandela are displayed at an office in Johannesburg January 17, 2013. REUTERS/Siphiwe Sibeko

JOHANNESBURG (Reuters) - The rand surged more than 1 percent against the dollar on Friday before giving up much of the gains made after market players interpreted comments from South Africa's finance minister as supportive for the rand.

The rand strengthened to a session high of 10.2095 to the dollar on Friday, after the market interpreted the comments from Pravin Gordhan as suggesting that South African authorities were considering currency intervention plans. At 1727 GMT, the rand was trading at 10.2550, up 1.01 percent from Thursday's New York close.

The newspaper quoted Gordhan as saying: "We still see the currency as an important shock absorber, but we'll have to manage or watch the situation on a day-by-day basis and see what lessons we can learn from others and what defensive measures we can develop on our own side."

The rand has fallen over 21 percent against the dollar since the start of the year, and hit a four-year low on Wednesday as investors sold emerging market assets because of uncertainty over the Fed's stimulus reduction and talk of Western intervention in Syria.

India said it was in talks with its emerging market peers to stop the market rout.

However, no specific plans were available, while South African Treasury officials said the market may have overplayed the minister's comments.

Gordhan has previously said global co-ordination was needed to shield emerging markets from the effects of uncertainty around the Fed's tapering.

Some players doubted there were intervention plans. "He has not put forward any concrete policy proposals at the global or domestic level," Peter Attard Montalto said in a note to investors.

"We do not believe the National Treasury has any policies on the table for dealing with rand weakness and it is totally counter to the SARB's ethos and orthodoxy," Montalto added, saying the Indian intervention talk may be "more verbal than real".

Government bonds tracked the rand firmer with the yield on the benchmark 2026 issue down 10 basis points to 8.465 percent.

"The firmer currency translated into firmer yields with the combination of some offshore inflows," said Parin Gokaldas, the head of fixed income at Absa Capital, adding that the firming move may not be sustainable.

The rand shook off data that showed South Africa's trade shortfall widening more-than-expected to 14.21 billion rand in July, from a 7.71 billion rand gap in June.