Rand Falls to Two-Week Low as Fed Avoids Stimulus, China Slows

The rand fell to a two-week low against the dollar as disappointment over a lack of new stimulus measures by the Federal Reserve and more evidence of slowing growth in China outweighed lower-than-expected inflation data.

The South African currency declined for a third day, sliding as much as 1.3 percent, and traded 0.9 percent weaker at 8.3653 per dollar as of 4:01 p.m. in Johannesburg, extending losses this week to 3.3 percent.

Fed policy makers said the U.S. is maintaining growth even as the global economy slows, disappointing investors that were expecting the central bank would signal plans for a third round of asset purchases known as quantitative easing, or QE3. Concerns over China’s economy mounted as the Conference Board’s leading indicator index fell 0.1 percent for October.

“Markets were expecting the announcement of QE3 by the U.S. Federal Reserve, but the Fed did nothing substantial to improve monetary conditions” at yesterday’s Federal Open Market Committee meeting, Nomvuyo Guma, a Johannesburg-based currency strategist at Standard Bank Group Ltd., and colleagues wrote in e-mailed comments. “The risk lies in further weakness today.”

Standard & Poor’s GSCI index of commodities fell 1.4 percent, while copper for three-month delivery slumped as much as 3 percent for a third day of losses. Commodities make up more than half of South Africa’s total exports, according to Rand Merchant Bank.

Inflation Report

South Africa’s inflation rate rose to 6.1 percent in November, breaching the central bank’s 3 percent to 6 percent target range for the first time in almost two years, as higher fuel prices and a weaker rand boosted costs. The median estimate of 20 economists was for a rate of 6.2 percent.

“We are seeing rising food prices, we are still seeing resilient grain prices and higher input costs,” Gina Schoeman, an economist with Absa Bank Ltd. in Johannesburg, said in a telephone interview. “The bad news is that even though it peaks next year, the downward trajectory is quite sticky and slow.”

South African bonds declined for an eighth day, pushing the yield on 13.5 percent bonds due 2015 up 10.3 basis points, or 0.103 percentage point, to 7.002 percent, the highest on a closing basis since Nov. 25. The yield climbed four basis points yesterday.

To contact the reporter on this story: Stephen Gunnion in Johannesburg at sgunnion@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net

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