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Rand Weakens the Most in Five Days on Global Economy Concern, Reserve Data
South Africa’s rand weakened the most in five trading days as concern deepened the global recovery will slow and a report showed the nation’s central bank stepped up dollar purchases to stem gains in the currency.
The currency of Africa’s biggest economy declined for a second day, losing as much as 1 percent to 7.2909 per dollar before trading 0.8 percent weaker at 7.2803 by 4:27 p.m. in Johannesburg, from a previous close of 7.2216. Against the euro, the rand gained 0.2 percent to 9.2813.
China’s government said a slowdown in industrial output growth will deepen while the central banks of Japan and Australia indicated they will continue using monetary policy to support their economies. German factory orders unexpectedly fell in July and the Wall Street Journal reported European bank stress tests published in July understated sovereign debt holdings, raising concern the region’s debt crisis may worsen.
“There’s still a big economic risk of a double-dip recession out there so the bias is for a weaker rand,” said Isaac Matshego, an economist at Nedbank Group Ltd. in Johannesburg, South Africa’s fourth-largest lender. “Our forecast is for the rand to decline to 7.65 by the end of the year, but we might need to revise that lower.”
Concern the global economy may return to recession overshadowed an industry report that indicated South African business confidence rose to the highest in almost two years.
The rand also weakened after a central bank report showed net foreign reserves, which includes gold and currencies, increased 1.2 percent to $39.2 billion in August, indicating policymakers bought dollars to stem the rand’s 29 percent rally versus the dollar since the start of last year.
Rand Strength
Standard Bank Group Ltd., Africa’s biggest lender, said the country’s net foreign-currency reserves increased by $280 million rand in August from a month earlier, according to a client note today.
“The rise in reserve accumulation should be rand- negative,” Standard Bank analysts Michael Keenan and Tebogo Mosepele wrote in the note. “South African authorities remain concerned about the strength of the rand.”
Government bonds gained for the first time in four days in South Africa, with the benchmark 13.5 percent security due September 2015 climbing 39 cents to 126.07 rand. That reduced the yield by 8 basis points to 7.21 percent.
To contact the reporter on this story: Garth Theunissen in Johannesburg gtheunissen@bloomberg.net
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