South African Rand Drops Most in Two Weeks as Commodities Slip

By Garth Theunissen

Sept. 3 (Bloomberg) -- South Africa's rand fell the most in two weeks against the dollar as stocks around the world dropped on concern slower global economic growth will sap demand for commodities and erode company earnings.

The rand declined for a third day as the Reuters/Jeffries CRB Index of 19 commodities slumped to a 6 1/2-month low after oil and metals prices fell. Commodities account for more than half of South Africa's exports, according to data from the Department of Minerals and Energy.

``Negative sentiment towards commodities is certainly acting as a drag on the rand,'' said Ulrich Leuchtmann, an emerging- markets currency strategist in Frankfurt at Commerzbank AG, Germany's second-biggest lender. ``A drop in commodity prices puts pressure on South Africa's ability to fund its current account deficit.''

The rand dropped as much as 1.6 percent to 7.9001 per dollar, the weakest level since Aug. 18, and was at 7.8832 by 1 p.m. in Johannesburg, from 7.7755 yesterday. It slipped versus 15 of the 16 major currencies monitored by Bloomberg, losing 0.5 percent against the euro to 11.3499, from 11.2897 yesterday.

``Commodities have dropped on a resurgent dollar and expectations of slower global growth,'' said Chris du Bois, chief dealer in Cape Town at Master Currency, which runs a chain of money changers. ``That's knocked confidence in global equity markets and sparked further softening sentiment toward emerging- market currencies.''

Shares, Metals Decline

South Africa's FTSE/JSE Africa All Share Index fell for a fourth day, losing as much as 1.3 percent, led by a slide in mining stocks as gold dropped below $800 an ounce.

Gold lost as much as 2 percent as lower oil prices and a stronger dollar eroded the appeal of the metal as a hedge against inflation. Platinum fell as much as 2.1 percent. South Africa produces almost 80 percent of the world's platinum and about 10 percent of its gold, typically causing the rand to move in tandem with their prices.

South Africa needs foreign purchases of stocks and bonds to finance its current-account gap, which swelled to 9 percent of gross domestic product in the first quarter, the most in 26 years.

The MSCI Asia Pacific Index fell to a two-year low while Europe's Dow Jones Stoxx 600 Index lost as much as 1.1 percent.

Government bonds fell, with the yield on the benchmark 13.5 percent security due September 2015 adding 1 basis point to 9.25 percent. The yield on the 13 percent note maturing in August 2010, which is more sensitive to interest-rate expectations than longer-dated debt, climbed 7 basis points to 9.94 percent. Yields move inversely to bond prices.

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