Rand Posts Second Weekly Decline as Commodity Slump Persists

By Garth Theunissen

Aug. 15 (Bloomberg) -- South Africa's rand posted a second weekly decline against the dollar as a slump in platinum and gold prices persisted, eroding earnings prospects for the world's biggest exporter of precious metals.

The rand fell to the lowest level in more than seven weeks as platinum headed for a 12 percent slide since Aug. 8, its fifth weekly drop, and gold plunged below $800 an ounce for the first time in eight months. Silver and palladium also sank. South Africa produces almost 80 percent of the world's platinum and about 10 percent of its gold and the rand typically moves in tandem with their prices.

``Commodity prices have collapsed, souring sentiment towards the rand,'' said George Glynos, managing director in Johannesburg at Econometrix Treasury Management, which advises clients on bond and foreign-exchange transactions. ``Commodities are facing demand destruction in the wake of a global economic slowdown. Along with a stronger dollar, that's hurting commodity-backed currencies.''

The rand fell as much as 2 percent to 8.0047 per dollar, the weakest level since June 25, and was at 7.8781 as of 4:22 p.m. in Johannesburg, from 7.8445 yesterday. The drop extended the rand's decline since Aug. 8 to 1.8 percent. It also fell versus all but four of the 16 most-actively traded currencies monitored by Bloomberg in the week. Against the euro, it dropped 0.2 percent to 11.5929.

``The fall in commodities has increased the appetite for dollars,'' said Shahin Vallee, an emerging-markets currency strategist in London at BNP Paribas SA, France's largest bank. ``The result is a sell-off in currencies like the rand.''

Sinking Metals

Gold fell as much as 4.2 percent to $772.98 an ounce today, the lowest level since Oct. 26. The precious metal is poised for its fifth weekly drop. Platinum has declined no less than 5.2 percent during each week of its five-week slide. Silver is down 14 percent this week, with palladium 13 percent lower.

Commodities, measured by the Standard & Poor's GSCI index, have tumbled 22 percent from their record July 3, descending into a bear market, on concern a spreading global economic slowdown would reduce demand for raw materials.

The rand also fell after the South African Reserve Bank left interest rates at 12 percent yesterday and Governor Tito Mboweni said inflation will drop ``significantly'' in the first quarter of 2009, reducing prospects for further increases in the key lending rate. The decision followed six gains since June last year and matched a forecast from economists surveyed by Bloomberg News.

`Disappointment'

The rand posted a seven-week rally after the last monetary policy committee meeting on June 12 when the central bank lifted interest rates by a half point, increasing the currency's allure for so-called carry trades.

``There was a bit of disappointment from people who were hoping for another interest-rate hike,'' said Vallee. ``Prospects for higher interest rates have been the only reason to buy rand so the decision undermines its carry-trade appeal.''

Carry-trade investors borrow money in countries with low interest rates to invest in markets that offer higher returns, earning the spread between the two. They take the risk currency moves will erase their profit.

South Africa's main interest rate is 1,150 basis points above Japan's and 925 basis points higher than Switzerland's.

The rand had its biggest weekly drop versus the dollar in more than two years last week as weaker precious metals prices hurt the outlook for export revenue. It has lost 13 percent in 2008, making it the worst-performing major currency monitored by Bloomberg.

Government bonds gained in the week, with the yield on the benchmark 13.5 percent security due September 2015 dropping 37 basis points to 9.13 percent. The yield on the 13 percent note due August 2010 fell 35 basis points from its Aug. 8 level to 9.79 percent. Yields move inversely to bond prices.

To contact the reporters on this story: Garth Theunissen in Johannesburg gtheunissen@bloomberg.net