Rand Retreats From Seven-Week High on U.S. Manufacturing Data

The rand weakened, rebounding from its strongest level in seven weeks, as stocks and commodity prices fell after data showed U.S. manufacturing unexpectedly shrank in June, damping demand for riskier assets.

The currency depreciated 0.2 percent to 8.1783 per dollar as of 4:30 p.m. in Johannesburg, after rising to its strongest level since May 14 in earlier trading. Yields on South Africa’s 6.75 percent bonds due 2021 declined two basis points, or 0.02 percentage point, to 7.24 percent.

The Institute for Supply Management’s manufacturing index fell to 49.7, worse than the most-pessimistic forecast in a Bloomberg News survey, from 53.5 in May, the Tempe, Arizona- based group’s report showed today. Figures less than 50 signal contraction. Earlier, data showed South Africa’s PMI below 50 for the first time in six months in June.

“From the response of the rand it is clear that the bulk of the focus rests with offshore developments,” Quinten Bertenshaw, a Johannesburg-based analyst at Tradition Analytics, wrote in e-mailed comments. “Investors should be wary of believing that the latest bout of rand strength will be sustained. The situation abroad is very fluid and prone to bouts of disappointing news.”

Commodities, Stocks Decline

Factory output in the euro region, Japan and China also contracted, reports showed earlier. The Standard & Poor’s GSCI Index of raw materials declined as the prices of metals including copper and platinum fell. Metals and other commodities account for 45 percent of South Africa’s exports.

The nation’s benchmark stock index slid, led by commodity exporters including Anglo American Plc (AAL) and BHP Billiton Ltd. (BHP)

Foreign investor purchases of South African bonds helped arrest the currency’s decline. Foreigners were net buyers of 2.6 billion rand ($320 million) of South African bonds last week, bringing net foreign purchases of the nation’s debt this year to 48.5 billion rand, the most since Bloomberg started compiling the data in 1996.

Inflows into bonds supported the rand as the nation’s trade deficit widened on slowing demand from Europe, which buys a third of South Africa’s exports, said John Cairns and Josina Solomons, currency strategists at Rand Merchant Bank in Johannesburg.

The rand stayed stronger after South Africa’s purchasing managers’ index fell below 50 for the first time in six months in June, indicating a contraction in manufacturing.

“Trade figures have been horrendous but bond inflows have been more than enough to compensate,” Cairns and Solomons wrote in e-mailed comments. “We’re still confident that the rand will manage to make some gains on a multi-month basis.”

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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