The rand slumped to a five-year low against the dollar on speculation that the Federal Reserve will end debt purchases this year. South African bonds declined for a second day.
U.S. government data today showed initial claims for unemployment benefits fell, supporting expectations the world’s biggest economy will be strong enough for the Fed to reduce stimulus that helped fuel demand for emerging-market assets, including South African debt. Manufacturing growth in Africa’s biggest gold producer was in line with analysts’ estimates in November, a report showed today.
“As long as U.S. data continue to impress, especially on the employment front, that not only justifies their decision to start tapering but also raises expectations that they’ll have to start raising rates as well,” Michael Keenan, a currency strategist at Barclays Africa Group Ltd., said by phone form Johannesburg. “That is of concern to emerging markets, including the rand, that have benefited from excess liquidity.”
The rand declined as much as 0.6 percent to 10.83 per dollar, the weakest level since Oct. 28, 2008. It traded 0.3 percent down at 10.7975 by 3:49 p.m. in Johannesburg, bringing its depreciation this year to 2.8 percent, the most out of 24 emerging-market currencies monitored by Bloomberg. Yields on benchmark rand bonds due December 2026 climbed two basis points, or 0.02 percentage point, to 8.28 percent.
Foreign investors sold a net 677 million rand ($63 million) of South African bonds yesterday, a fifth straight day of sales, bringing outflows this year to 3.44 billion rand, according to JSE Ltd. data.
Initial jobless claims in the U.S. fell to the lowest in a month in the week through Jan. 4, the Labor Department reported in Washington. A report tomorrow is projected to show that the employment gain for 2013 was the biggest in eight years.
The Fed said after its Dec. 17-18 meeting it will taper bond buying to $75 billion a month starting in January from $85 billion. They will probably reduce purchases in $10 billion increments over the next seven meetings before ending them in December, according to the median forecast in a Bloomberg survey.
“Any data or event that may result in a more aggressive unwinding of the Fed’s extraordinary stimulus measures will weigh on markets that have become overly dependent on the Fed’s ultra-easy monetary policy stance,” Theuns de Wet, head of global markets research at Rand Merchant Bank in Johannesburg, said in an e-mail. “The rand remains one of those currencies.”
Manufacturing growth in South Africa slowed to 0.3 percent in November from a revised 1.7 percent the month before. That matched the median estimate of six economists in a Bloomberg survey.