Johannesburg - South Africa’s rand weakened to breach 13 per dollar for the first time in almost 14 years.
The currency of Africa’s most-industrialised economy tumbled to the lowest level since December 2001, weighed down by a decline in commodity prices this year that threatens to slow growth amid a selloff in emerging markets. Stocks and currencies in developing nations dropped on Thursday as Kazakhstan let its tenge fall as pressure mounts on countries that trade with China to let their currencies weaken on concern the yuan’s devaluation last week will make exports less competitive.
“For South Africa Inc, the weaker rand is more bad news than good news,” Mohammed Nalla, the Johannesburg-based head of strategic research at Nedbank Group, said. “South Africa is a capital-scarce economy. In the context where global capital flows are becoming a lot more discerning, a weak rand doesn’t give us any sort of competitive advantage.”
South Africa’s currency is being hurt by lower prices for resources that account for more than half of exports, slowing growth in China - the top destination for its raw materials - and the prospect of a Federal Reserve interest-rate increase. An electricity shortage and persistent fiscal and current-account deficits are fueling the decline.
The rand dropped 0.9 percent to 13.0030 per dollar by 11:07 a.m. in Johannesburg, extending losses this year to 11 percent. The rand may decline to 13.15 per dollar before gaining support, Nalla said.
Rough road
Options traders are signaling the currency faces a tough time ahead. The spread between the rand’s three-month historical volatility, a measure of actual price swings, and implied volatility, which gauges expectations of future price fluctuations, widened to 4.02 percentage points this week, the most since January 2014, according to data compiled by Bloomberg.
“The market is pricing in more pain than is actually prevalent in market conditions,” Warrick Butler, a rand and emerging-markets currency trader at Johannesburg-based Standard Bank Ltd., Africa’s biggest rand trader, said by phone. “This deterioration of the rand isn’t going to go away anytime soon.”
The slide in the currency underlines the challenges faced by President Jacob Zuma’s administration in reigniting investment and growth in the $366 billion economy struggling with 25 percent unemployment.
The country faces more than 60s 000 job losses this year in industries ranging from mining to aviation, according to a report by the Solidarity labor union.
Thousands of jobs could be lost and mines closed if South African producers give in to wage demands from workers, according to Harmony Gold Mining CEO Graham Briggs. The company, which employs 30 000 people, offered to lift salaries of the lowest paid workers by 11 percent last month, above the inflation rate, which accelerated to 4.7 percent in June, the highest this year.
Rebound looms
A rebound may be in the offing after the slump pushed the rand’s nine-day relative-strength index above the level that indicates it’s oversold.
The rand’s RSI climbed to 73 on Thursday, the highest since July 8 and above the 70 level that some traders see as a sign the currency has depreciated too much, too fast.
“There are still concerns about South Africa, about inflation and wage settlements,” Nigel Rendell, a senior emerging markets analyst at Medley Global Advisors, said by phone from London.
“The further the currency slips the more the concerns are about inflation in the future.”
BLOOMBERG