Rand Weakens to 4-Year Low as Investors Sell Bonds; Yields Rise

The rand fell to its weakest level in almost four years as foreigners reduced holdings of South African assets on concern labor unrest and mining output cuts will weigh on the nation’s current-account deficit.

The rand dropped as much as 2.3 percent to 9.1458 a dollar, the lowest intraday level since April 21, 2009, and traded at 9.1150 at 5:37 p.m. in Johannesburg. That extended its decline this year to 7 percent, the worst of 25 emerging-market currencies monitored by Bloomberg. Yields on 10.5 percent government bonds due December 2026 rose 8 basis points, or 0.08 percentage point, to 7.47 percent, the highest since Dec. 5.

Foreign investors sold 544 million rand ($61 million) of South African equities last week, increasing net sales this year to 1.77 billion rand. They bought 278 million rand of bonds on Jan. 25 after three days of net sales. Foreigners have sold 2.4 billion rand of the nation’s debt since Anglo American Platinum Ltd. announced on Jan. 15 it may cut its workforce by 14,000 as it restructures its operations and farm workers continued striking over wages.

“Domestic-specific factors are weighing heavily on both underlying flows and market sentiment, and further explosive labor-market events cannot be ruled out,” Bruce Donald, a Johannesburg-based currency strategist at Standard Bank Group Ltd., said in e-mailed comments. “The country’s large external funding requirement means that the currency is very vulnerable to any upset in capital flows.”

‘More Challenging’

Financing of the country’s current-account gap, which reached 6.4 percent of gross domestic product in the third quarter of 2012, “may be more challenging” as sentiment toward South Africa has deteriorated, Reserve Bank Governor Gill Marcus said at the conclusion of the Monetary Policy Committee meeting on Jan. 24.

The rand extended its decline after orders for durable goods in the U.S. climbed more than forecast in December, showing manufacturing is rebounding from a mid-year slump and boosting demand for the dollar. The U.S. currency gained against all but one of the 25 emerging-market currencies monitored by Bloomberg. Brazil’s real gained 0.8 percent.

“The market is still pretty nervous,” Ion de Vleeschauwer, chief dealer at Johannesburg-based Bidvest Bank, the nation’s biggest chain of money-changers, said by phone. “There is eager buying of dollars out of the U.S. and emerging-market currencies are taking a beating.”

Bookings for goods meant to last at least three years rose 4.6 percent, exceeding the highest forecast of economists surveyed by Bloomberg, after a 0.7 percent gain in November, a Commerce Department report showed today in Washington. The median forecast of 76 economists surveyed by Bloomberg called for a 2 percent advance.

Gold and platinum prices declined, weighing on the rand, De Vleeschauwer said. Metals and other commodities accounted for 61 percent of South Africa’s exports in the first 11 months of 2012, according to government data.