Rand Retreats From Week-High on Mining Slump, Europe Recession

The rand declined, retreating from the strongest level in a week, after mining output slumped and recession deepened in the euro area, South Africa’s biggest regional trading partner.

South Africa’s currency declined 0.3 percent to 8.8934 per dollar as of 3:23 p.m. in Johannesburg, after rising yesterday to the strongest level since Feb 6. Yields on benchmark 10.5 percent bonds due December 2026 rose two basis points, or 0.02 percentage point, to 7.32 percent.

Mining production in Africa’s biggest economy fell 7.5 percent in the year through December, compared with a revised 3.8 percent contraction the month before. The median estimate of economists in a Bloomberg survey was for a 3.2 percent decline. Mining commodities accounted for 53 percent of South Africa’s exports in 2012, according to government data.

“These figures indicate that the mining sector is still reeling from the devastating effects of labor strikes,” Isaac Matshego, an economist at Nedbank Group Ltd. in Johannesburg, said in e-mailed comments. “Overall economic activity therefore remains generally sluggish while upside risks to inflation have increased due to the weaker rand.”

Gross domestic product in the euro area fell 0.6 percent in the fourth quarter from the previous three months, the worst performance since the first quarter of 2009. The euro region buys 24 percent of South Africa’s exports, according to government data.

New Policies

The rand has weakened 4.5 percent this year, the third-biggest decline among 16 major currencies, as South Africa struggles to recover from the worst labor unrest since apartheid ended in 1994, protests by shantytown residents and three credit-rating downgrades. President Jacob Zuma may announce new policies in his 7 p.m. State of the Nation speech in Cape Town to create jobs, improve education and speed up delivery of services to poor areas, according to Carmen Nel, a Cape Town-based analyst at Rand Merchant Bank.

“On balance, we think the statement will at least be neutral for the markets and could even be a slight positive surprise,” Nel said in e-mailed comments today. “Even so, there is still a lot of event risk for the markets.”