Rand Extends Longest Losing Run in 12 Years: South Africa Credit

The South African rand extended its longest quarterly losing streak in 12 years as a boost provided by the Federal Reserve’s delay in paring its stimulus program faded amid concern labor strikes are curbing economic growth.

The rand lost 1.7 percent against the dollar since June 30, the worst performer after the Mexican peso among 16 major currencies tracked by Bloomberg, stretching the run of declines to six quarters. The peso retreated 1.8 percent, while New Zealand’s dollar rallied 7 percent over the period.

Strikes at mines, building sites and carmakers this year overshadowed the fillip from the Fed’s surprise decision this month to keep its $85 billion-a-month purchases of assets intact, with Africa’s biggest economy forecast to grow this year at the slowest pace since a 2009 recession. The weakening rand is the biggest threat to inflation, leaving the central bank little room to cut interest rates to stimulate growth. That could weigh on the nation’s bonds, set for their first quarterly gain in three.

“If the rand is weaker, inflation expectations have got to be higher,” Mamokete Lijane, a fixed-income analyst at Absa Capital, said by phone from Johannesburg on Sept. 27. “In that environment, bonds will sell off.”

Lost Production

Foreigners sold a net 1.1 billion rand ($110 million) of bonds in the four days through Sept. 26 after 7.6 billion rand of purchases the week of the Fed decision, according to data from the Johannesburg stock exchange. The rand weakened 2.4 percent against the dollar last week.

Workers aligned to the Association of Mineworkers & Construction Union started a strike at Anglo American Platinum Ltd., the biggest miner of the metal, on Sept. 27 to challenge a plan to fire 3,300 workers. South African gold producers cut short a work stoppage this month after agreeing to an 8.5 percent pay increase. Vehicle manufacturers including Toyota Motor Corp., Volkswagen AG and General Motors Co., lost production revenue of about 20 billion rand after 30,000 employees downed tools for 15 days seeking higher pay, according to the National Association of Automobile Manufacturers of South Africa.

Strikes shaved 0.5 percentage point off economic growth in 2012 and an estimated 0.3 percentage point this year, President Jacob Zuma said in June. The economy will probably expand 2 percent this year, according to the central bank.

‘Fragile Countries’

“The market still believes there will be tapering,” Peter Attard Montalto, a London-based emerging-markets economist at Nomura International Plc, said by phone on Sept. 26. “The risk into those more worrisome, fragile countries, like South Africa, still has to be there. There are still the same domestic risks that are coming through. There is still the same current-account dual deficit, fiscal issue; still a low growth picture.”

Lost mining production will probably keep pressure on South Africa’s current account, the broadest measure of trade, after the shortfall widened to 6.5 percent of gross domestic product in the second quarter.

The rand gained 0.3 percent to 10.0592 per dollar as of 4:07 p.m. in Johannesburg. Yields on the government rand bonds due December 2026 dropped three basis points, or 0.03 percentage point.

Import Costs

The rand’s decline has boosted import costs, lifting gasoline prices 6.8 percent in July and 2.4 percent last month. The country relies on imports for 70 percent of its oil needs. Inflation, which accelerated to 6.4 percent in August and the highest level in four years, typically increases as much as 2 percentage points for every 10 percent decline in the currency, according to the central bank.

“It’s the same old story,” Ion de Vleeschauwer, the Johannesburg-based chief dealer at Bidvest Bank, said by phone on Sept. 27. “We are a nation of importers. The demand for foreign currency is just too much and there isn’t enough supply.”

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