Rand Slips Most in Five Weeks on Public Strike, Capital Inflow Tax Concern

The rand weakened the most in more than five weeks as South Africa’s 1.3 million government workers began striking, the ruling African National Congress reiterated that it was discussing taxing portfolio inflows and as investors awaited the U.S. Federal Reserve’s policy statement.

The currency depreciated for the first time in five trading days, losing as much as 1.2 percent to 7.2740 per dollar, the steepest intraday slide since July 1. The rand traded 1.1 percent down at 7.2662 as of 2:54 p.m. in Johannesburg, from a previous close of 7.1900.

As many as 800,000 members of the Public Sector Association will join the strike today, said Leon Gilberts, the national manager of the trade union. Almost 89 percent of the South African Democratic Teachers Union’s 245,000 members will strike, spokeswoman Nomusa Cembi said.

“We expect 1.3 million public-sector workers to take to the streets for a strike, which will not do the rand any favors,” Marc Copeland, a Cape Town-based currency trader at Investec Asset Management, which oversees about $70 million in assets, wrote in a client note. Investors unwound “long-risk positions” before the U.S. Federal Open Market Committee meeting today to decide on interest rates, boosting the dollar, said Copeland.

South Africa’s government on Aug. 5 made what it said was its final pay proposal, offering to raise wages by 7 percent and increasing housing allowances to 630 rand ($87) from 500 rand. Fourteen unions rejected the offer, demanding 8.6 percent pay increases and monthly housing allowances of 1,000 rand.

Losses Extended

The rand extended earlier losses after South Africa’s ruling African National Congress reaffirmed an earlier statement that it was discussing ways of taxing foreign capital inflows to stem gains in the currency. Details of the proposed tax, first mentioned in an ANC discussion document posted on its website on July 30, have not yet been considered, Enoch Godongwana told reporters in Johannesburg today.

“It doesn’t seem to be anything new to what was outlined in the earlier discussion document,” said Leon Myburgh, a fixed-income and currency strategist for sub-Saharan Africa at Citigroup Inc. “They basically still seem to be talking about it.”

Foreign investors have been net buyers of almost 81 billion rand ($11.2 billion) of South African stocks and bonds this year, according to data from the JSE Ltd., which operates the nation’s exchanges. That has prompted labor unions and manufacturers to lobby policy makers to weaken the rand, which they blame for hindering economic growth after the currency rallied almost 30 percent since the start of last year.

Bonds

Government bonds rose, with the benchmark 13.5 percent security due September 2015 climbing less than 1 cent to 124.45 rand. The yield on the bond was little changed at 7.602 percent.

Money-market investors increased bets that South Africa’s central bank will reduce its main interest rate of 6.5 percent at its next meeting on Sept. 9, forward-rate agreements show. The cost of three-month contracts for cash in one month slumped 17 basis points to 6.31 percent, the lowest level since the central bank first introduced its repurchase rate since 1999.

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

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