Rand Hits Longest Retreat in 25 Years on China, Labor Unrest
The rand weakened to its longest losing streak in 25 years as manufacturing in China, the biggest buyer of South African raw materials, probably slowed and as labor unrest ignited concern about growth before the Reserve Bank’s rate decision.
The worst-performing emerging-market currency this year depreciated for an 11th day and traded at its weakest level against the dollar on a closing basis since March 2009 after about 10,000 South African textile workers said yesterday they went on strike and after Federal Reserve Chairman Ben S. Bernanke said a premature withdrawal of stimulus could endanger the U.S. recovery as policy makers debated scaling back the pace of its bond purchase program. Investec Asset Management said the rand may weaken to 9.86 per dollar in the short term before rebounding, without giving a time frame.
“Currencies are being driven by the stronger dollar on the view that the Fed will start tapering later this year,” Vivienne Taberer, who helps manage about $14 billion in emerging-market debt and currencies at Investec Asset Management, said in e-mailed comments. The rand’s weakening is “overdone” and its “positioning is getting stretched,” she said. The currency may strengthen to 9.30 in the medium term, she said.
The rand, which lost 12 percent this year, slipped 0.3 percent to 9.5965 by 1:52 p.m. in Johannesburg. Yields on South Africa’s benchmark 10.5 percent rand bonds due December 2026 rose four basis points, or 0.04 percentage point, to 7.06 percent.
Labor unrest has flared up in Africa’s largest economy this month, with a two-day work stoppage at Lonmin Plc (LMI)’s Marikana operations following the assassination of an Association of Mineworkers and Construction Union official on May 11. Members of the Southern African Clothing & Textile Union downed tools in the southeastern KwaZulu-Natal province for two days from May 21 demanding higher wages.
Seven people, including two shot by rubber bullets, were injured in clashes between workers and security personnel over annual performance-related payments at Lanxess AG (LXS)’s chrome unit near Rustenburg in North West province yesterday.
China’s manufacturing probably contracted in May for the first time in seven months, supporting the view that the country’s economic growth is losing steam for a second quarter. The preliminary reading of 49.6 for a Purchasing Managers’ Index (EC11FLAS) released today by HSBC Holdings Plc and Markit Economics compares with a final 50.4 for April and the 50.4 median estimate in a Bloomberg News survey. A reading above 50 indicates expansion. China is the biggest buyer of South African raw materials.
The MSCI Emerging Markets Index dropped 2 percent, poised for the biggest slide in 10 months. The FTSE/JSE Africa All-Share Index (JALSH) fell 1.7 percent, the most since April 15 on an intraday basis.
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