Rand Weakens Before Inflation Report as Fed Weighs Stimulus

The rand declined for the first time in three days, retreating from a five-week high, as Federal Reserve officials start a two-day policy meeting and before a report that may show South Africa’s inflation rate rose.

The Federal Open Market Committee will probably decide to cut its monthly bond purchases, which fueled demand for high-yielding assets, to $75 billion from $85 billion, according to the median estimate of economists in a Bloomberg survey on Sept. 6. South African inflation in August stayed above the central bank’s 3 percent to 6 percent target range for a second month, a report may show tomorrow.

“The rand remains vulnerable to tougher global funding conditions and the risk to the currency remains skewed towards further weakness,” Theuns de Wet, head of fixed-income research at Rand Merchant Bank in Johannesburg, said in an e-mailed note. “The market will probably start looking towards the FOMC decision. We would therefore expect the rally of the last few days to start to lose some steam.”

The rand depreciated 0.3 percent to 9.8393 per dollar as of 2:40 p.m. in Johannesburg. Yields on benchmark 10.5 percent bonds due December 2026 climbed five basis points, or 0.05 percentage point, to 8.12 percent.

South Africa, which has the highest unemployment rate of more than 40 emerging markets tracked by Bloomberg, lost 28,000 non-farm jobs in the second quarter, Statistics South Africa said today. Employment in the formal, non-agricultural industries fell 0.3 percent to 8.4 million from the first quarter. The data is based on a survey of companies registered to pay taxes.

Extreme Moves

South Africa’s inflation rate probably rose to 6.4 percent in August from 6.3 percent the month before, according to the median estimate of 21 analysts in a Bloomberg survey. Rising prices are limiting the South African Reserve Bank’s room to stimulate the economy. The central bank will leave its key repurchase rate unchanged at 5 percent on Thursday, according to all 18 economists surveyed.

The rand gained 1.2 percent against the dollar yesterday on bets Lawrence Summers’ withdrawal as a candidate to lead the Fed eases the risk of an early halt to monetary stimulus, prompting a rally in emerging-market assets.

“The moves over the past two sessions have been fairly extreme, given what triggered them and the fact that we have the outcome of the FOMC meeting tomorrow” and the Reserve Bank decision the next day, Mohammed Nalla, head of strategic research at Nedbank Group Ltd. in Johannesburg, said in an e-mail. “The markets may approach the next few sessions with somewhat greater caution.”

Foreign investors bought a net 2.28 billion rand ($232 million) of South African bonds yesterday, the most in a day since July 30, according to JSE Ltd. data. Non-residents also bought 119 million rand of equities, the data shows.

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