Rand Posts Third Weekly Decline Against Dollar as Economy Slows

By Garth Theunissen

Jan. 24 (Bloomberg) -- South Africa’s rand posted a third week of declines against the dollar on more evidence the continent’s biggest economy is slowing while a deepening global recession makes investors wary of riskier assets.

The rand weakened versus 12 of the 16 most actively traded currencies monitored by Bloomberg this past week, with its biggest loss against the yen, as the nation’s retail industry contracted for a seventh month. South Africa’s benchmark equities index had its largest weekly drop in seven weeks, reducing demand for the currency needed to purchase the nation’s stocks.

“Negative sentiment toward the rand is being fueled by the poor growth story, which was highlighted by the poor domestic retail figures,” said Evan Robins, head of fixed-income investing for BOE Stockbrokers, a unit of Johannesburg-based Nedbank Group Ltd. “Guys are also very worried about the global economy, which means there’s a lot of general aversion toward riskier, emerging markets.”

The rand dropped 2.6 percent to 10.3276 per dollar as of 5:23 p.m. in Johannesburg on the last day of trading, extending its weekly decline to 3.8 percent from Jan. 16 when it closed at 9.9500. It slipped 5.5 percent against the Japanese currency this week to 11.6 cents per yen, from 10.97 cents on Jan. 16. Against the euro, it lost 0.4 percent to 13.2500, from 13.1996 at the end of last week.

South African government bonds advanced in the week. The yield on the 13 percent note maturing in August 2010, which is more sensitive to interest-rate expectations, declined 31 basis points to 7.08 percent. The yield on the benchmark 13.5 percent security due September 2015 lost six basis points to 7.54 percent. Yields move inversely to bond prices.

Slowing Economy

Retail sales in November slid 4 percent, after a revised drop of 2.2 percent the month before, a Jan. 21 government report showed.

Growth in South Africa’s $278 billion economy slowed to a decade low of 0.2 percent in the third quarter as the first simultaneous recession in the U.S., Japan and the euro region since the end of World War II deepened.

South Africa’s rate of economic expansion will fall below 1 percent in 2009, prompting the South African Reserve Bank to cut its key interest rate 3.5 percentage points to 8 percent by year-end, Barclays Plc-owned Absa Group Ltd. said in a client note this week.

“There is such conviction that rates are going to fall dramatically this year that the bond market just keeps on rallying,” said Robins. “It’s not just the amount of cuts but the speed, as the majority of rate cuts will come in the first half of this year.”

The central bank may reduce borrowing costs by 100 basis points in each of their next two interest rate meetings, scheduled for February and April, Absa said. Policy makers on Jan. 21 brought forward the date of their next Monetary Policy Committee by a week, meaning rate cuts are likely to come sooner than expected.

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