Rand Leads Emerging-Currency Declines as Economic Data Weighs

  • Manufacturing, business confidence data add to concern
  • Rand falls to weakest level on record on closing basis

South Africa’s rand led emerging-market currency declines on Thursday as manufacturing and business confidence data added to concern the nation is struggling to emerge from a second-quarter contraction.

The currency of Africa’s most-industrialized economy slumped as much as 1.5 percent as 17 out of 24 developing-market currencies weakened. It was 1.2 percent weaker at 13.6108 per dollar by 2:40 p.m. in Johannesburg, a record low on a closing basis.

The rand has depreciated 12 percent this quarter, weighed down by lower commodity prices as China’s economy slowed, and by the prospect of a Federal Reserve rate increase that would attract capital to the dollar. The Standard Bank South Africa PMI remained below the 50 level for a third month in August, suggesting a manufacturing contraction, while an index of business confidence fell to the lowest since 1999, reports showed today.

“A fresh set of negative data today is triggering a move above 13.60” for the rand, Bernd Berg, an emerging-market strategist at Societe Generale SA in London, said in an e-mail. “Chinese and global growth fears driven by a significant slowdown in emerging markets, a corresponding drop in commodity prices and uncertainty about the Fed hike will continue to trigger bouts of risk aversion.” weighing on the rand, he said.

South Africa’s Reserve Bank raised its policy rate 25 basis points in July to 6 percent. Even higher rates are needed to arrest the rand’s decline, said Ion de Vleeschauwer, chief dealer at Johannesburg-based Bidvest Bank Ltd. Policy makers meet on September 23 to review borrowing costs, one week after the Fed.

“Its just constant, constant demand” for dollars, De Vleeschauwer said. “We need higher interest rates here, and by lots. You need at least 50 basis points or more.”

The rand may breach 14 per dollar by next week, De Vleeschauwer said. The currency briefly reached above 14 per dollar in thin Asian trade on August 24, according to Bloomberg generic pricing.

Yields on benchmark rand bonds due December 2026 government climbed 6 basis points to 8.51 percent, the highest since Aug. 24.