South African Rand Declines for Third Day as Strike Shuts Mines

By Garth Theunissen

Aug. 6 (Bloomberg) -- South Africa's rand fell for a third day against the dollar as the country's biggest labor federation began a nationwide strike to protest at higher power prices.

The drop pushed the rand to the lowest level in a week as the one-day action shut mines and factories in the country, reducing output from the world's biggest producer of precious metals. South Africa's currency also fell on speculation the country's importers are taking advantage of its advance to a six- month high on Aug. 4 to buy dollars.

``Almost two million workers are expected to strike and that has negative implications for domestic output,'' said Michael Keenan, a currency strategist in Johannesburg at Standard Bank Group Ltd. the continent's largest lender. ``Disruptions to production aren't good for the rand, especially given its weakness in the last few days.'' It may fall to 7.55 by next week, he predicted.

The rand dropped as much as 1 percent to 7.4558 per dollar and was at 7.4126 by 2:25 p.m. in Johannesburg, from 7.3808 yesterday. It also fell versus all its 16 major counterparts monitored by Bloomberg, losing 1 percent to 11.5158 per euro.

The Congress of South African Trade Unions, known as Cosatu, called a strike after the energy regulator allowed state-owned Eskom Holdings Ltd. to raise electricity prices 27.5 percent to fund a $44 billion expansion. The utility, which supplies 95 percent of South Africa's power, cut energy to mines and smelters for five days in January because of a lack of capacity.

Mines, Factories Shut

The strike shut operations at AngloGold Ashanti Ltd., the world's third-largest gold producer while Anglo American Plc, the biggest investor in South African mining, said 55 percent of workers stayed away from its nine coal mines.

Vehicle assembly and manufacturing plants run by Ford Motor Co., Volkswagen AG and Mercedes-Benz South Africa, a unit of Daimler AG, were also closed.

Cosatu says higher energy costs and power shortages will cut jobs in a nation where 23 percent of the workforce is unemployed.

The rand dropped 3 percent in the past three days, its longest losing run since June 12. That follows a seven-week rally that sent it almost 9 percent higher as the central bank raised the benchmark interest rate by a half-point in June to a five- year high of 12 percent.

``The rand hit a wall at about 7.20 per dollar and importers have been climbing in to buy foreign currency ever since,'' said Chris du Bois, chief dealer in Cape Town at Master Currency, which runs a chain of money changers. ``The rand has had a great run so guys tend to start taking profits at stronger levels.''

Government bonds declined, with the yield on the benchmark 13.5 percent security due September 2015 climbing 3 basis points to 9.31 percent. Yields move inversely to bond prices.

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