Rand Slumps to 4-Year Low as Mine Violence Renews Labor Concerns

The rand declined for a ninth day, weakening to a four-year low, as violent protests at a South African chrome mine renewed concern that labor disruptions will cut mining output and slow economic growth.

Seven people were injured in clashes between striking workers and guards at a Lanxess AG chrome mine at Rustenburg, north of Johannesburg, the company said today. Labor unions are demanding wage increases of as much as 60 percent from gold- and coal-mining companies, boosting chances of more strikes as the industry struggles to contain costs. A two-day stoppage at Lonmin Plc’s Marikana platinum mine last week reignited concern that rivalry between unions may lead to violence.

“The domestic labor situation continues to weigh on the rand,” Mohammed Nalla, head of strategic research at Nedbank Group Ltd., said by phone from Johannesburg. “The long-term fundamentals for the rand remain negative.”

The rand weakened 1.3 percent to 9.5697 per dollar by 3:32 p.m. in Johannesburg, bringing its decline since May 8 to 5.9 percent in the longest losing streak in a year. The currency earlier fell as low as 9.6264 per dollar, the worst intraday level since March 2009. Yields on benchmark 10.5 percent bonds due December 2026 rose 8 basis points, or 0.08 percentage point, to a month-high 7.02 percent as demand slumped at a weekly government auction of fixed-rate debt.

The rand may extend its decline to 9.70 per dollar after breaching 9.55, a significant level of support for the currency, Nalla said. Support and resistance are levels where traders cluster orders to buy or sell a security or currency.

‘Battle Lines’

Mining strikes cut about 15 billion rand ($1.6 billion) from economic output last year, pushing the current-account deficit to a four-year high and contributing to the rand’s 14 percent slide in the past 12 months. Metals and other commodities accounted for 53 percent of South Africa’s exports in 2012, according to government data.

“The battle lines are drawn ahead of the mining sector’s upcoming wage negotiations,” Nomvuyo Guma, an analyst at Standard Bank Group Ltd. in Johannesburg, said in e-mailed comments. “Concerns over the possibility of further disruptive strikes on the back of these wage demands have been a major contributing factor to the rand’s recent renewed weakness.”

The rand’s three-month implied volatility versus the dollar rose 48 basis points today to 13.78 percent, the highest since November, as options traders anticipate wider swings in coming months. The rand’s relative strength index rose to 75, trading above the 70 level that indicates a currency is oversold, for a second day.

Demand Halves

Demand for government debt more than halved at the National Treasury’s weekly fixed-rate bond auction today, according to central bank data. The Treasury sold 2.35 billion rand of bonds maturing in 2023, 2031 and 2041, with investors bidding for 4.26 billion rand of debt, compared with 9.69 billion rand of bids at the previous auction on May 14.

Bonds retreated on speculation the rand’s weakness is reducing the South African Reserve Bank’s room to lower borrowing costs on Thursday, when the Monetary Policy Committee announces its decision. The central bank will leave its benchmark repurchase rate unchanged at 5 percent, according to 19 out of 20 economists in a Bloomberg survey, with one predicting a 25 basis-point cut.

“Even if the Reserve Bank had room to move rates lower in terms of other factors, the tail risk of a much higher dollar-rand exchange rate and the vulnerability of the local currency will provide enough of a disincentive for the bank to act,” George Glynos, an analyst at ETM Analytics, said in e-mailed comments.

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