The rand slumped to its weakest level in almost four years after U.S. retail sales in February exceeded forecasts, bolstering demand for dollars amid signs South Africa’s economy is slowing.
South Africa’s currency slumped as much as 1.1 percent to 9.2684 per dollar, the weakest level since April 8, 2009. It traded 0.7 percent down at 9.2306 as of 4:42 p.m. in Johannesburg, bringing its decline this year to 8.2 percent, the most out of more than 20 emerging-market currencies monitored by Bloomberg. Yields on 10.5 percent bonds due December 2026 climbed five basis points, or 0.05 percentage point, to 7.44 percent, the highest since Jan. 30.
The dollar gained against most of its peers as the 1.1 percent U.S. retail sales advance exceeded all projections in a Bloomberg survey, sparking speculation the Federal Reserve will end monetary stimulus that fueled demand for high-yielding assets including South African bonds sooner than anticipated. The country’s own retail sales growth slowed in January amid labor strikes and a burgeoning current-account deficit.
“At the moment the dollar is the only currency in town,” Ion de Vleeschauwer, the Johannesburg-based chief dealer at Bidvest Bank, said by phone. “Bad local factors combined with a massively strong dollar means only one thing: the rand has nowhere to hide.”
Retail sales rose 1.9 percent from a year earlier, down from a revised 2.2 percent pace in December, Pretoria-based Statistics South Africa said on its website today. The median estimate in a Bloomberg survey of 12 economists was 3.6 percent.
The nation posted a current-account deficit close to a four-year high in the fourth quarter, the Reserve Bank said yesterday, undermining the rand and adding to price pressures in Africa’s biggest economy. South Africa relies mainly on foreign investment in stocks and bonds to fund the deficit, inflows that have fluctuated this year as global growth slowed and investors’ risk perceptions increased.
“The external financing requirement poses a significant risk,” Carmen Nel, a Cape Town-based economist at Rand Merchant Bank, said in e-mailed comments. “The latest trade figures suggest that the current account should remain under pressure.”
The monthly trade deficit swelled to a record in January. Exports may come under pressure again this year as stoppages at Exxaro Resources Ltd. coal mines highlight the risk of more wildcat strikes in the mining industry, which accounts for 53 percent of export earnings.
The current-account deficit “implies growing risks for the rand, given that the shortfall is sustainable only as long as foreign investors are willing to fund it,” Shireen Darmalingam, an analyst at Standard Bank Group Ltd. in Johannesburg, said in a research note e-mailed to clients today.