The rand weakened to a two-month low against the dollar because of concern that slowing growth in the euro region will weigh on South Africa’s exports as labor disputes in the mining industry dent investor confidence.
The economy of the euro area, South Africa’s biggest regional trading partner, will expand 1.1 percent in 2014, less than the 1.2 percent forecast in May, the Brussels-based European Commission said today. A strike at South Africa’s fourth-biggest platinum miner entered a third day as wage talks at three other producers continued.
“There’s a lot of uncertainty, with a lot of event risk this week,” Jim Bryson, head of foreign-exchange trading at Rand Merchant Bank, said by phone from Johannesburg. “In these sort of circumstances, the rand doesn’t do well. What started as a dollar-strength story last week has turned into a rand-weakness story.”
The rand retreated 1.1 percent to 10.2480 per dollar, the weakest level on a closing basis since Sept. 3 and the worst out of 24 emerging-market currencies monitored by Bloomberg after Brazil’s real. The currency is down 17 percent this year. Yields on bonds due December 2026 added five basis points, or 0.05 percentage point, to 8.15 percent after dropping 10 basis points yesterday.
About 7,000 workers continued a strike that started on Nov. 3 at Northam Platinum Ltd.’s biggest mine, the National Union of Mineworkers said. Pay talks are going on at three other mines that produce more than 70 percent of the world’s platinum output. South Africa needs foreign investment to plug a current-account shortfall that may average 6.5 percent of economic output this year, according to government estimates.
“The rand remains a victim of poor local fundamentals as well as the mining labor unions,” Mohammed Nalla, head of strategic research at Nedbank Group Ltd., said in e-mailed comments. Labor disputes do “little to instill confidence in the already faltering economy,” he said. A sustained decline above 10.20 per dollar may trigger a slump to 10.50, Nalla said.
Foreign investors sold a net 977 million rand ($96 million) of South African bonds and 436 million rand of stocks yesterday, according to JSE Ltd. data.