- Currency under pressure after PMI falls, trade gap widens
- Credit-default swaps show nation due for rating downgrade
South Africa’s rand weakened to a record against the dollar on Tuesday, before rating reviews by Fitch Ratings Ltd. and Standard & Poor’s that may see the country move closer to junk level.
The currency dropped as much as 0.3 percent to 14.4930 per dollar before paring the decline to trade little changed at 14.4397 by 5:39 p.m. in Johannesburg, bringing its depreciation this year to 20 percent, the third-worst performance after the Colombian peso and Brazilian real out of 24 emerging currencies tracked by Bloomberg. Yields on benchmark government bonds due Dec. 2026 climbed 4 basis points to 8.62 percent, the highest since Nov. 13.
Credit default swaps show the nation’s credit rating might be due for a downgrade. Twelve of 13 analysts surveyed by Bloomberg said Fitch will cut its assessment to BBB-, the lowest investment grade on Dec. 4. On the same day, S&P will probably keep its rating at one level above junk, while some analysts are predicting the company will lower its outlook to negative from stable. The reviews come as South Africa’s economy struggles to recover from a slump in commodity prices, electricity shortages and slowing growth in China, South Africa’s biggest trading partner.
“The Fitch and S&P announcements on Friday call for some caution,” Thando Vokwana, a trader at FirstRand Ltd.’s Rand Merchant Bank unit, said by phone from Johannesburg. “Sentiment around those issues in particular, and the fact that your commodity outlook isn’t so great at this point,” mean that “our backs are still to the wall,” he said.
The Bloomberg Commodity index has dropped 22 percent this year, weighing on an economy that relies on raw materials for more than 50 percent of its exports. South Africa has 80 percent of global platinum reserves and is the world’s sixth-biggest gold producer.
The Barclay’s Manufacturing PMI fell to 43.3, the lowest since August 2009, a report showed today. Data on Monday showed the nation’s trade deficit widened to 21.4 billion rand ($1.5 billion) in October, the most since January.