Johannesburg - The rand headed for a nine-month high against the dollar to lead gains among major currencies as results from South Africa’s local government elections showed a swing to the main opposition and expectations of a Bank of England rate cut boosted higher-yielding assets.
Early counting from local government elections held on Wednesday showed the governing African National Congress trailing the Democratic Alliance in the country’s financial hub and biggest city Johannesburg, and in the capital, Pretoria, even as it leads the overall national vote.
By 10.45am in Johannesburg, the rand was 0.6 percent stronger at 13.8280 against the dollar, advancing for a second day and the best performer among 31 major and emerging market currencies tracked by Bloomberg. A close at this level would be the currency’s highest since November 3.
The rand also led gains against the British pound and the euro, while yields on benchmark government rand bonds due December 2026 dropped for a third day, declining six basis points to the lowest on a closing basis since November 30. The benchmark stock index advanced 0.2 percent.
“The election outcome seems to be supporting expectations of a change in major cities,” said Simon Quijano-Evans, emerging-market strategist at Legal & General Investment Management in London. “A wind of change is what markets have been looking for, however small it may be, given the sustained income inequality and continued drop in growth rates.”
The BOE is due to publish a full assessment of the impact of the UK vote to leave the European Union, and its plan of defence. The consensus of economists in a Bloomberg survey is for the bank to lower its main lending rate to a record low, making high yielding assets in emerging economies such as South Africa more attractive for investors.
“Smooth-running local elections are helping the sentiment this morning, it looks like our democracy is still in good order, so that’s good news,” said Ion de Vleeschauwer, chief dealer at Bidvest Bank in Johannesburg. “The carry play is also helping things along with the BOE expected to cut rates today, our yields are looking attractive in the short term.”
* With assistance from Maria Levitov
BLOOMBERG