Singapore - South Africa’s rand tumbled the most since 2011 on concern the plunge in commodity prices will deepen as China’s economy slows.
The currency of Africa’s most-industrialised economy led declines in emerging-market exchange rates, hurt by lower prices for resources that account for more than half of its exports. Losses have been exacerbated by concern over growth in China, the top destination for South Africa’s raw materials, and the prospect of higher US interest rates.
The rand is among the “commodity-linked, high-yielding currencies where a lot of foreign funds were parked”, said Nizam Idris, Singapore-based head of foreign-exchange and fixed-income strategy at Macquarie Bank Ltd. “A lot of these flows are being reversed right now. Lower Chinese growth means weaker demand for commodities as they are the world’s largest consumer of raw materials by far.”
The rand weakened 3.1 percent to 13.39 a dollar as of 11.03am in Singapore, the most since December 2011, data compiled by Bloomberg show. It fell as low as 14.07 earlier, the lowest on record, and has dropped 14 percent this year.
The slide in the rand underlines the challenges faced by President Jacob Zuma’s administration in reigniting investment and growth. China’s surprise devaluation of the yuan on August 11 has roiled global markets and reinforced concern of a steep slowdown in the world’s second-largest economy. The Bloomberg Commodity Index, which tracks 22 raw materials, slumped to its lowest level since 1999 on Monday.
“It’s a vicious cycle for commodity-related currencies like the rand as weak commodity prices would feed into weak jobs market, weighing on the economy,” said Tarsicio Tong, a currency trader at Union Bank of Taiwan in Taipei. “It’s hard to see any strong rebound for now.”
* With assistance from Fion Li in Hong Kong
BLOOMBERG