Rand Snaps 3-Day Rally on Commodities; Yields Hit 3-Month High

The rand depreciated for the first time in four days on speculation raw material prices will fall as China’s economic growth slows, damping demand for currencies linked to commodities. Bond yields rose to a three-month high.

South Africa’s currency retreated 1 percent to 7.6208 per dollar as of 2:17 p.m. in Johannesburg. The yield on the nation’s 65 billion rand of 13.5 percent bonds due 2015 climbed 11 basis points, or 0.11 percentage point, to 6.95 percent, the highest since Dec. 15.

The currencies of other commodity-producing countries including Australia and New Zealand also declined after BHP Billiton Ltd., the world’s largest mining company, and Rio Tinto Group, the third-biggest, signalled slowing growth in China. The country is South Africa’s biggest trading partner, buying 14 percent of the nation’s exports.

“The commodity-based emerging markets are not as well poised as they were previously,” Brigid Taylor, head of institutional flow sales at Nedbank Group Ltd. in Johannesburg, said by phone. “The momentum of inflows into South Africa has slowed down, and the dollar-rand is looking bottomish.”

The Standard & Poor’s GSCI Index of raw materials dropped for the first time in three days and an index of global emerging-market stocks retreated to its lowest level in more than a week. South Africa’s benchmark stock index declined for a second day, led by commodity exporters including Anglo American Plc and BHP.

The dollar advanced against all 16 most-traded currencies monitored by Bloomberg. The rand’s three-month implied volatility versus the dollar climbed to 15.81 percent today, from 15.6 percent yesterday, indicating options traders see wider price swings in the currency in coming months.

Interest Rate

Investors are adding to bets South Africa’s central bank will raise its benchmark repo rate after leaving it at 5.5 percent for 16 months to aid growth in Africa’s biggest economy. Forward-rate agreements starting in December gained one basis point today to 6.01 percent, indicating traders expect a 50 basis point rate increase this year. The rate has climbed from 5.62 percent on Jan. 2 and is at its highest level since August.

South African spending growth accelerated the most in more than a year in the fourth quarter as the nation’s current account deficit unexpectedly weakened, the central bank said yesterday. Inflation is becoming “more generalised” as demand picks up, Governor Gill Marcus said on March 15.

“The cyclical recovery will be stronger than either the Reserve Bank or consensus economists foresee,” George Glynos, an economist at Johannesburg-based ETM Analytics, wrote in e-mailed comments today. “Local short-term interest rate expectations are likely to continue to trend higher from here. Local bond yields may rise.”

The yield on South Africa’s $1.5 billion of 4.665 bonds due 2024 jumped five basis points to 4.34 percent. The premium investors demand to hold the debt rather than U.S. Treasuries widened nine basis points to 198 basis points.

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