Rand Weakens Most Among Emerging Markets Before Fed MeetingRobert Brand
The rand slumped, leading emerging-market currency declines against the dollar, on speculation that the Federal Reserve may start reducing monetary stimulus after a two-day meeting that starts today.
The central bank in the world’s biggest economy may begin cutting its $85 billion of monthly bond purchases this week, according to 34 percent of economists in a Dec. 6 Bloomberg survey, up from 17 percent in a Nov. 8 poll. The stimulus helped drive investment to emerging-market assets including South African bonds.
Dollar demand from local companies that need currency to pay for imports “is just overwhelming,” Ion de Vleeschauwer, chief dealer at Bidvest Bank Ltd., said by phone from Johannesburg. “A lot of people were hoping for a much stronger rand by now, and it just hasn’t happened. Now they are forced to buy because they don’t want to ride event risk into the Fed meeting.”
The rand weakened 0.9 percent to 10.3708 per dollar by 4:05 p.m. in Johannesburg, the biggest intraday drop since Dec. 6 and the worst performance out of 31 major and emerging-market currencies monitored by Bloomberg. Yields on benchmark bonds due December 2026 dropped three basis points, or 0.03 percentage point, to 8.21 percent.
Foreign investors have sold a net 2.29 billion rand ($221 million) of South African bonds this month, bringing outflows since the beginning of November to 17.1 billion rand, according to JSE Ltd. data. The nation needs an average of 19.5 billion rand of foreign investment a month to finance its current-account deficit, according to Standard Bank Group Ltd.
“All eyes in the financial markets this week are on the outcome of the Federal Open Market Committee meeting,” Mohammed Nalla, head of strategic research at Nedbank Group Ltd. in Johannesburg, said in e-mailed comments. “Hopefully the outcome of this will provide the clarity the markets have been seeking.”