Rand Set for Longest Losing Streak in Year on Rating Concerns

South Africa’s rand weakened for a sixth day, set for its longest losing streak in a year, on concern that falling commodity prices and labor unrest at mines are threatening the nation’s credit rating.

South Africa’s rating outlook remains negative and mining strikes may hurt the economic growth outlook, Moody’s Investors Service said yesterday. The Standard & Poor’s GSCI Index (SPGSCI) of raw materials dropped for a fifth day as metals including gold and platinum declined. Metals and other commodities account for more than half of South Africa’s exports.

“There’s still some tension at the mines, and gold is getting hammered,” David Gracey, head of currency and derivatives trading at Investec Ltd., said by phone from Cape Town. “It’s a dollar-buying story.”

South Africa’s currency depreciated as much as 1.1 percent to 9.3582 per dollar, the weakest level since March 22. It traded 0.8 percent down at 9.3294 per dollar by 11:37 a.m. in Johannesburg, bringing its retreat in the past six trading days to 3.5 percent. Yields on benchmark 10.5 percent bonds due December 2026 rose three basis points, or 0.03 percentage point to 6.85 percent.

Employees at Lonmin Plc (LMI)’s Marikana mine returned to work late yesterday after a two-day illegal strike, the company said today. Rivalry between two labor unions that led to the strike will persist and may cause disruptions at other mines, according to Brigid Taylor, head of institutional flow sales at Nedbank Group Ltd. (NED) in Johannesburg.

Tarnished Image

“The workers’ return is not the end of the industrial action, which has shaken the industry and tarnished South Africa’s image as a major international mining investment destination,” Taylor said in e-mailed comments. “The market has not fully priced in the risk of another credit rating downgrade.”

If the strikes aren’t contained, it could weigh on South Africa’s credit rating, Fitch Ratings analyst Carmen Altenkirch told the Johannesburg-based Business Day newspaper on May 14.

The rand has lost 12 percent against the dollar since Moody’s cut the rating by one level to Baa1 on Sept. 27. New York-based Standard & Poor’s lowered South Africa by the same magnitude to BBB on Oct. 12, while Fitch followed on Jan. 10. Moody’s and S&P kept a negative outlook on the rating.

The rand’s three-month implied volatility against the dollar has climbed 40 basis points in the past two days to 12.82 percent, indicating that options traders see wider swings in the currency in coming months.

To contact the reporter on this story: Robert Brand in Cape Town at rbrand9@bloomberg.net

To contact the editor responsible for this story: Vernon Wessels at vwessels@bloomberg.net

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