Rand Slumps, Heads Toward Biggest Weekly Decline in Two Years

By Garth Theunissen

Aug. 8 (Bloomberg) -- South Africa's rand slumped to the lowest level in a month against the dollar, heading for the biggest weekly drop in more than two years, as gold and platinum slid, cutting the value of the country's biggest export earners.

The rand posted the largest decline versus the dollar among the 16 major currencies tracked by Bloomberg as gold fell to an eight-week low and platinum was poised for a fourth-weekly drop. The Reuters/Jeffries CRB Index of 19 commodities retreated for a fourth day this week and is down 16 percent from a July 3 record. House prices increased at the slowest pace in almost nine years, an industry report showed yesterday.

``A rampant dollar is heightening the commodity downturn, which isn't good for the rand,'' said Tolga Ediz, an emerging- markets currency strategist in London at Lehman Brothers Holdings Inc. ``South Africa's poor macroeconomic picture also isn't helping the currency.''

The rand dropped as much as 3.3 percent to 7.7448 per dollar, the weakest level since July 11, and was at 7.7268 by 3:08 p.m. in Johannesburg. It has lost 6.6 percent since Aug. 1, the biggest weekly decline since the period ended June 23, 2006.

Gold for immediate delivery fell as much as $17.63 to $855.42 an ounce, the lowest since May 5. Platinum fell 6.5 percent in the week to $1,549.50 an ounce. South Africa produces almost 80 percent of the world's platinum and about 10 percent of its gold, meaning the rand often moves in tandem with the metals' prices.

`Importer Interest'

The rand's drop this week follows a seven-week rally that sent it 12 percent higher after the central bank raised its benchmark interest rate by a half-point in June to a five-year high of 12 percent. The rand was the best performer in the world last month.

``A turnaround in the rand has triggered a bout of profit taking and importer interest after almost two months of gains,'' said Russell Lamberti, an economist in Johannesburg at Econometrix Treasury Management, which advises clients on bonds and foreign exchange. ``Commodity prices have also fallen sharply and the rand isn't immune to that.''

Growth in South African house prices rose an annual 3.2 percent in July, the slowest pace since September 1999, as borrowing costs at the highest in more than five years curbed demand, Johannesburg-based Absa Group Ltd., the country's biggest mortgage lender, said yesterday.

The South African Reserve Bank raised its key lending rate 10 times since June 2006 to 12 percent to curb the fastest inflation in at least a decade. Consumer-price growth accelerated to an annual 11.6 percent in June, exceeding the central bank's 3 percent-to-6 percent target range for a 15th month.

Government bonds fell, with the yield on South Africa's benchmark 13.5 percent security due September 2015 climbing 12 basis points to 9.53 percent. In the week the yield gained 28 basis points. Yields move inversely to bond prices.

``The weaker currency is prompting a bond sell-off,'' said Mokgatla Madisha, a bond trader at Investec Asset Management in Cape Town, which oversees around $60 billion dollars in assets. ``A softer rand worsens the inflation outlook because it increases the cost of oil imports.''

South Africa imports about two-thirds of its oil needs.

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