Rand Worst Performer as Growth Concerns Damp Export Prospects
South Africa’s currency retreated as much as 0.9 percent to 8.4831 per dollar, the weakest level since July 25. It traded 0.5 percent down as 8.4518 as of 3 p.m. in Johannesburg, bringing its drop this month to 2.3 percent, the worst performance out of 16 major currencies monitored by Bloomberg. Yields on 6.75 percent bonds due 2021 dropped two basis points, or 0.02 percentage point, to 6.79 percent.
German unemployment increased for a fifth month in August, retail sales in Japan fell more than estimated last month and South Korean manufacturers’ confidence stayed near the lowest level since 2009. U.S. jobless claims were unchanged at a one- month high. South Africa will probably post its seventh monthly trade deficit in July as exports decline, a report tomorrow may show, according to the median estimate of seven economists in a Bloomberg survey.
“Reality is finally dawning on people,” Ian Cruickshanks, head of treasury strategic research at Johannesburg-based Nedbank Group Ltd., said by phone. “The trade account is looking bleak, it’s going to lead to the current account deficit widening, and the rand’s going to come under pressure.”
A debt crisis in Europe, which buys a third of South Africa’s manufactured exports, has curbed demand, boosting the trade gap for the first half of the year to 51.1 billion rand ($6 billion) from 2.5 billion rand a year earlier, the South African Reserve Service said last month.
The rand stayed weaker after data on private-sector credit and producer price inflation prompted investors to add to bets on a second central-bank interest-rate cut.
Credit growth slowed to 8.3 percent in July, from 8.7 percent the month before, as consumer confidence fell to the lowest level in four years, the South African Reserve Bank said today. Producer-price inflation slowed to 5.4 percent, from 6.6 percent in June. The median estimate of economists in a Bloomberg survey was for a 5.8 percent rise.
The Reserve Bank cut its repurchase rate by half a percentage point to 5 percent on July 19, the first reduction in 20 months, to help support growth in Africa’s biggest economy. Slower growth in factory-gate prices may ease pressure on consumer prices, which rose 4.9 percent in July. The central bank aims to keep inflation within a range of 3 percent to 6 percent.
“Under these circumstances, we would expect the Reserve Bank to stand still going into its September meeting, while not closing the door to the possibility of further monetary easing at a later date,” Bruce Donald, a currency strategist at Standard Bank Group Ltd. in Johannesburg, wrote in e-mailed comments.
Two-year interest-rate swaps, used to lock in borrowing costs, dropped two basis points today to 4.96 percent, the lowest since July 27.
Investors are weighing whether Federal Reserve Chairman Ben Bernanke will signal a new round of bond buying when he speaks in Jackson Hole, Wyoming tomorrow. Data today is forecast to show U.S. consumer spending rose the most since February. A government report showed the country’s gross domestic product grew at a 1.7 percent annual rate in the second quarter, up from an initial estimate of 1.5 percent.
“It looks likely that Bernanke is going to reiterate his ‘wait-and-see’ approach, which should see dollar strength return,” Brigid Taylor, head of institutional sales at Nedbank Group Ltd. in Johannesburg, wrote in e-mailed comments. “Therefore, the risk is to the topside for the rand.”
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