Rand Leads Global Currency Declines as Current-Account Gap Grows

  • South Africa's currency worst performer among 31 peers
  • Rand may extend decline as portfolio flows, exports dwindle

The rand fell the most in two weeks, leading global currency declines against the dollar, after South Africa’s current-account deficit widened more than economists’ expectations while outflows from the nation’s stock and bond markets hastened.

South Africa’s currency slumped as much as 1.4 percent, the most since Feb. 26, before paring the decline to trade 0.8 percent weaker at 15.3809 per dollar by 2:42 p.m. in Johannesburg, the worst performance among 31 major and developing-nation currencies tracked by Bloomberg. Yields on benchmark government bonds climbed 3 basis points to 9.31 percent.

The shortfall in the current account, the broadest measure of trade in goods and services, widened to 5.1 percent of gross domestic product in the fourth quarter, from 4.3 percent in the previous three months, the central bank said Tuesday. The gap was the biggest in more than a year and highlights South Africa’s vulnerability to investor sentiment when capital outflows from emerging-markets are gaining momentum. Standard & Poor’s cited the persistently high shortfall when it lowered its outlook on the nation’s credit rating to negative in December.

‘More Pressure’

“This number has put an economy that’s already got a weak rand under more pressure because most of our current account is funded by foreign investment into our bond and equity market,” said Wichard Cilliers, a trader at Treasuryone Ltd. in Pretoria. “The weak rand doesn’t look like it’s helping. The ratings agencies will look at the current account.”

South Africa, which relies on portfolio investments to finance the current-account gap, saw those inflows trickle to a halt in the fourth quarter, central bank data showed. Exports also dropped, suggesting the commodities and manufacturing sectors aren’t yet benefiting from a weaker currency.

Foreign investors sold a net 300 million rand ($20 million) of stocks and bonds in the fourth quarter, compared with inflows of 11.8 billion rand in the third, the central bank said. Exports fell 3 percent by value, while foreign direct investment swung to a net outflow of 23.7 billion rand. That may weigh on the currency, already pummeled by the slump in commodity prices and concerns that the nation may lose its investment-level credit rating.

“The deterioration in South Africa’s current-account deficit is unlikely to do the fragile rand any favors,” Jeffrey Schultz, an economist at BNP Paribas Securities Ltd. in Johannesburg, said in an e-mailed note. “We are skeptical over the ability for South Africa’s trade and current-account deficits to narrow significantly over the medium-term.”

The rand has dropped 22 percent against the dollar in the past year and may extend its decline another 5 percent by the end of the second quarter to 16.25, according to the median forecast in a Bloomberg survey.

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