South Africa's Rand Falls Against Dollar as Commodities Slump

By Garth Theunissen

Sept. 3 (Bloomberg) -- South Africa's rand fell for a third day against the dollar as the country's stocks dropped on concern a slide in commodity prices would trim export earnings for the world's biggest producer of precious metals.

The rand declined to the weakest level in more than two weeks as the Reuters/Jeffries CRB Index of 19 commodities slumped to a 6 1/2 month low on bets a global economic slowdown would crimp demand for raw materials. 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 1.2 percent to 7.8668 per dollar, the weakest level since Aug. 18, and was at 7.8618 by 10:30 a.m. in Johannesburg, from 7.7755 yesterday. It slipped to 11.3092 per euro, from 11.2897 yesterday.

South Africa's FTSE/JSE Africa All Share Index fell for a fourth day, losing as much as 0.8 percent, led by a slide in mining stocks as gold dropped below $800 an ounce.

Gold lost as much as 0.9 percent as lower oil prices and a stronger dollar reduced the appeal of the metal as a hedge against inflation. Platinum fell as much as 0.2 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.

Current Account

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.

Government bonds fell, with the yield on the benchmark 13.5 percent security due September 2015 adding 2 basis points to 9.26 percent. The yield on the 13 percent note maturing in August 2010, which is more sensitive to interest-rate expectations, climbed 3 basis points to 9.90 percent. Yields move inversely to bond prices.

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