Rand Declines to Pare Weekly Gain as China Growth Prospects Dim

The rand weakened, paring a third weekly advance, after China ordered companies to cut excess production, underscoring concern that demand is set to slow in the biggest buyer of South African raw materials.

Manufacturing in China shrank in July for the first time in 10 months, economists said in a Bloomberg survey before an official gauge due Aug. 1. The Asian nation accounted for 14 percent of all exports in the five months through May, according to the South African Revenue Service. The Standard & Poor’s GSCI Index of raw materials slumped to a two-week low as metals including copper and platinum declined. Commodities account for more than 50 percent of South African exports.

“As the commodity world continues to look to China for direction on growth, real economic indicators remain uninspiring,” Walter de Wet, an analyst at Standard Bank Group Ltd. in Johannesburg, said in e-mailed comments. “For South Africa, this is important, because the rand is a commodity currency. It will remain on the back foot until global growth prospects brighten and commodity prices turn the corner.”

South Africa’s currency depreciated 0.7 percent to 9.7900 per dollar as of 5:04 p.m. in Johannesburg, paring its advance this week to 0.9 percent. Yields on bonds due December 2026 climbed six basis points, or 0.06 percentage point, to 8.17 percent. The yield is up 29 basis points this week.

Fed Speculation

The rand extended declines after data showing a rise in U.S. consumer sentiment rekindled speculation the Federal Reserve is poised to reduce monetary stimulus.

Fed policy makers meet next week after Chairman Ben S. Bernanke told Congress that any reduction in stimulus would depend on the economy’s performance. They have kept their key rate at virtually zero since 2008 to support the economy.

“It’s still all about the Fed,” John Cairns, a currency strategist at Rand Merchant Bank in Johannesburg, said in e-mailed comments. “Next week is set to be extremely volatile.”

Foreign investors sold a net 114 million rand ($12 million) of South African bonds yesterday while buying a net 531 million rand of equities, according to the JSE Ltd. That brought net portfolio inflows for the first four days of the week to 608 million rand, according to Bloomberg calculations.

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