South African Rand Gains on Prospect of Platinum Strike Ending

South Africa’s rand gained for the first time in four days and bonds advanced after a labor union accepted a wage offer from platinum companies, raising the prospect of an end to the 20-week strike.

The rand strengthened 0.8 percent to 10.6664 per dollar by 4:17 p.m. in Johannesburg, the best performance among 24 emerging-market currencies tracked by Bloomberg. Yields on government bonds due December 2026 dropped 10 basis points to 8.36 percent.

An agreement in principle on wages and employment conditions has been reached with leaders of the Association of Mineworkers and Construction, according to a statement from Impala Platinum Holdings Ltd., the world’s second-biggest producer, Anglo American Platinum Ltd. and Lonmin Plc. Impala workers have agreed to the plan, while the AMCU is canvassing members’ opinions at other mines. The deal comes a day before Standard & Poor’s and Fitch Ratings announce decisions on the nation’s creditworthiness.

“It seems like AMCU is happy to accept the offer, and that’s certainly positive for markets, though the big news is still tomorrow,” Deon Kohlmeyer, head of fixed-income trading at FirstRand Ltd., said by phone from Johannesburg.

More than 70,000 members of the union have been on a strike over pay since Jan. 23, forgoing 9.9 billion rand ($926 million) in wages and costing the producers 22.1 billion rand in revenue. S&P cited labor tensions and slowing growth among reasons for retaining its negative outlook on South Africa’s debt in December.

Downgrade Effect

The strike curbed exports and slowed growth, putting pressure on the nation’s current-account deficit, South African Reserve Bank Governor Gill Marcus said on June 10. Data released today showed mining output increased in April for the first time since January.

The rand may already have priced in the effect of a downgrade, Bruce Donald, head of foreign-exchange strategy at Standard Bank Group Ltd., which sees a “better-than-even” chance of a S&P downgrade. The currency has slumped 3 percent in the past month, the worst performance among emerging-market peers.

A resolution of the strike “should be viewed as rand-positive in that it might serve to ease anxieties regarding current-account compression, as well perhaps to some extent allay rising concerns over the country’s growth prospects,” Donald wrote in a client note.

The rand has declined 3.1 percent in the past month as investors anticipate a rating cut that may boost the nation’s borrowing costs. S&P will probably cut the rating to BBB- from BBB, while Fitch may change its outlook to negative from positive, according to Rand Rand Merchant Bank, a unit of FirstRand.

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