Rand Falls to 5-Week Low as Mining Slump Stokes Exports Concern
The rand declined for a third day, falling to a five-week low against the dollar, on investor concern that the nation’s current-account gap will widen as metal exports decline. Bond yields rose to two-week highs.
South Africa’s currency retreated as much as 0.8 percent to 8.8685 per dollar, the weakest since Oct. 9. It traded 0.7 percent down at 8.8590 as of 4:40 p.m. in Johannesburg. Yields on benchmark 10.5 percent bonds due December 2026 climbed four basis points, or 0.04 percentage point, to 7.71 percent, the highest since Oct. 31.
South Africa’s mining production slumped the most in five months in September amid the worst labor unrest since apartheid, cutting as much as 12.5 billion rand ($1.4 billion) from the country’s exports and adding to the widest trade deficit in four years, according to government data. Platinum production has fallen to an 11-year low as violent strikes and mine closures cut output, London-based Johnson Matthey Plc said yesterday.
“One now gets to see the impact of all this industrial unrest on the ability of the South African economy to mine the product and sell it to foreigners,” ETM Analysts, including Johannesburg-based George Glynos, said in an e-mailed note. “It is part and parcel of the reason for South Africa’s lacklustre export performance and again speaks to the necessity to attract the kind of inflows required to finance our trade deficits or face the prospect of a weaker rand.”
The shortfall on South Africa’s current-account gap, the broadest measure of trade in goods and services, widened to 6.4 percent of gross domestic product in the second quarter, the biggest deficit in almost four years.
Investors are also concerned that the ruling African National Congress’ elective congress next month will usher in policy changes that may harm the economy, said Brigid Taylor, head of institutional flow sales at Nedbank Group Ltd. in Johannesburg. The party’s youth wing has lobbied for a government takeover of mining assets.
“The rand still faces headwinds in the face of uncertainties pertaining to political issues and continued unrest in the mining sector,” Taylor said in e-mailed comments. “We expect the unit to trade weaker for the remainder of the year.”
The rand’s three-month implied volatility against the dollar climbed 12 basis points today to 14.5 percent, the most out of 25 emerging-market currencies monitored by Bloomberg. Rising volatility indicates that options traders expect wider swings in the currency in coming months.
South African retail sales growth eased more than forecast in September as consumer confidence waned because of slowing economic expansion. Retail sales rose 4.3 percent from a year earlier, below the revised 6.7 percent pace in August, Pretoria- based Statistics South Africa said on its website today. The median estimate in a Bloomberg survey of 12 economists was for growth of 4.8 percent.
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