Rand Gains as Fed Optimism Outweighs S. African Current Account

The rand gained, erasing earlier declines, on optimism the U.S. Federal Reserve may signal further stimulus at a meeting this week.

The currency of Africa’s largest economy advanced 0.2 percent to 8.1777 a dollar at 3:19 p.m. in Johannesburg, after earlier retreating as much as 0.5 percent. Yields on the nation’s 6.75 percent bonds due March 2021 dropped one basis point, or 0.01 percentage point, to 6.58 percent.

The Federal Open Market Committee will discuss additional measures to stimulate the U.S. economy at a two-day meeting starting tomorrow. Fed Chairman Ben Bernanke said on Aug. 31 he wouldn’t rule out steps to lower an unemployment rate he described as a “grave concern.” The gap on South Africa’s current account, the broadest measure of trade in goods and services, grew to 6.4 percent in the second quarter, the widest shortfall since the third quarter of 2008, from 4.9 percent of gross domestic product, the Reserve Bank said in its Quarterly Bulletin released in Pretoria today.

“Generally, the market continues to trade with a positive risk bias ahead of the much-awaited FOMC decision,” Benoit Anne, the London-based head of emerging markets research at Societe General SA, said in e-mailed comments. “The rand, which did sell off earlier this morning after a particularly bad current account number, did not waste too much time staging a bounce back.”

Debt Crisis

A debt crisis in Europe has damped demand for exports from a region that buys about a third of shipments from South Africa, curbing economic growth. Manufacturing production declined 1 percent in the second quarter, according to Statistics South Africa, and the government and central bank forecast economic expansion will slow to 2.7 percent this year from 3.1 percent in 2011.

The rand is showing a “weaker bias” and will probably end the year between 8.40 and 8.60 per dollar, with the data posing “upside risk” to the currency, Brigid Taylor, the head of institutional flow sales at Nedbank Group Ltd.’s investment banking unit in Johannesburg, said by phone.

The deficit swelled even as net purchases of South African bonds increased to 74.24 billion rand ($9 billion) this year, 57 percent more than the whole of last year. South Africa’s inclusion next month in Citigroup Inc.’s World Government Bond Index is luring money managers who use the gauge to measure performance.

Mining Strikes

“With kind of inflows we’re seeing into the bond market, I would’ve expected to see the deficit a little more contained -- that was not the case,” Nedbank Capital’s Taylor said. The reading on the current account in the second quarter doesn’t “bode well” for the rest of the year, with strikes in the mining industry reducing output, she said.

Lonmin Plc workers went on strike at the company’s platinum mine in Marikana in the North West province on Aug. 10, demanding higher wages. Police shot dead 34 protesters on Aug. 16 at the Marikana operations following a week of violence in which 10 others died. Many miners have since refused to go back to work while unrest has spread to Gold Fields Ltd., where an illegal strike is under way.

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