South Africa Rand Falls on Speculation Importers Buying Dollars

By Garth Theunissen

Oct. 20 (Bloomberg) -- South Africa's rand declined against the dollar on speculation the country's importers took advantage of gains that drove the currency to the highest level in three days to buy foreign exchange.

The rand was also hurt as traders bet Finance Minister Trevor Manuel may push the budget into a deficit next year to fund spending on infrastructure and social programs to cushion a slowdown in Africa's biggest economy. The currency earlier rose for a third day versus the dollar, rebounding from a 17 percent plunge on Oct. 15 sparked by concern about a global recession.

``We're seeing strong importer demand below the 10 rand to the dollar level,'' said Ian Martin, a currency strategist at Rand Merchant Bank in Johannesburg. ``Small importers in particular have been rattled by the rand's weakness. Every time the rand strengthens they buy foreign exchange.''

The South African currency fell as much as 2.2 percent to 10.2295 per dollar and traded at 10.2170 as of 4:23 p.m. in Johannesburg, from 10.0126 at the end of last week. Earlier, it strengthened to 9.8250. The rand fell versus all 16 most- actively traded currencies monitored by Bloomberg, slipping 1.5 percent versus the euro to 13.6229, from 13.4260.

South Africa's currency slid 33 percent against the dollar this year, making it the worst-performing major currency in the world, as foreign investors turned net sellers of about 34 billion rand ($3.3 billion) of the country's stocks and bonds. About $30 trillion has been wiped off global stock benchmarks in the past year as the U.S. subprime-mortgage crisis toppled financial institutions and spread to economies around the world.

Precious Metals

The rand declined even as equities gained and gold and platinum prices advanced, boosting the revenue prospects for the world's biggest exporter of precious metals.

``We've definitely seen importer-buying today,'' said Marc Copeland, a currency trader at Investec Capital Markets in Cape Town, where he helps manage about $60 billion in assets. ``People are nervous about further rand weakness. Any deterioration in equity markets will hit the rand hard.''

Copeland said he is ``positioning for further weakness'' in the currency, without giving a trading range. ``It's difficult to say exactly where the rand is going to trade in the current environment,'' he said.

South Africa's benchmark FTSE/JSE Africa All Share Index gained 2.3 percent today, rising for a second day. The equity measure is down 29 percent this year.

Deficit Concern

The country's deficit may be as much as 1 percent of gross domestic product in the year through March 2010, compared with a February estimate of a 0.6 percent surplus, according to Standard Chartered Plc and South Africa's Bureau for Economic Research. Manuel will present his Medium Term Budget Policy Statement at 2 p.m. in Cape Town tomorrow.

``We're one day ahead of a major policy statement, so it stands to reason that investors would hold back on rand positions until they have more certainty,'' said Ian Cruickshanks, head of research at Nedbank Treasury in Johannesburg. Manuel ``may be pushed to send the budget into deficit and that's cause for concern.''

Labor unions and communists have increased their influence over the ruling African National Congress since successfully backing Jacob Zuma to become party president in December. The ANC is pushing to step up spending to boost job creation in the country, where one in four people is unemployed.

Gold climbed for the first time in three days, increasing 1.4 percent to $794.69 an ounce. Platinum snapped a three-day decline, gaining 2.3 percent, to $885.70 an ounce.

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 the metals' prices.

Government bonds fell, with the yield on the 13.5 percent security due September 2015 rising about 1 basis point to 9.31 percent. The yield on the 13 percent note maturing in August 2010 rose 4 basis points to 9.56 percent. Yields move inversely to bond prices.

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