South Africa’s Rand Falls Versus Dollar as Gold, Platinum Drop
South Africa’s rand fell against the dollar as stock-market losses around the world and speculation the Federal Reserve will halt its interest-rate cuts damped demand for higher-yielding, emerging-market currencies.
The rand snapped a two-day gain, declining from a two-month high, as South Africa’s benchmark stock index dropped for a third day, tracking the prices of gold and platinum, the country’s biggest exports. The currency also fell as traders raised bets the Federal Reserve will indicate a pause in rate cuts after a quarter-percentage point decrease tomorrow.
“A re-pricing of interest-rate expectations is helping the dollar, which is negative for all emerging-market currencies,” said Elisabeth Gruie, an emerging-markets currency strategist in London at BNP Paribas SA, France’s biggest bank. “A retracement in commodity prices is also hurting resource-backed currencies.”
The currency of Africa’s biggest economy fell as much as 1.1 percent to 7.6075 per dollar, and was at 7.6060 by 6:11 p.m. in Johannesburg, from 7.5284 late yesterday. The move pared the rand’s monthly advance to 6.2 percent, its biggest 30-day gain since May 2004, when it rose 6.8 percent.
The FTSE/JSE Africa All Share Index declined as much as 1.6 percent, following European and U.S. stocks lower. The Dow Jones Stoxx 600 Index fell 0.9 percent, while the S&P 500 lost 0.4 percent.
“Weaker equity markets are keeping appetite toward emerging- market currencies in check,” said Lucy Bethell, an emerging- market currency strategist in London at Royal Bank of Scotland Plc. “Softer commodity prices aren’t helping either.”
Precious Metals
Gold and platinum fell after demand for the metals as alternative investments waned. Gold futures for June delivery declined 1.6 percent on the New York Mercantile Exchange. Platinum declined to $1,950.00 per ounce.
South Africa produces 10 percent of the world’s gold and about 78 percent of its platinum, meaning the rand often moves in tandem with the price of the metals.
Futures trading the Chicago Board of Trade show an 82 percent chance the Fed will cut the target rate for overnight lending by a quarter-percentage point to 2 percent and a 71 percent likelihood that the rate will be held at that level in June.
“We defer from market expectations that the Fed will signal a pause in its rate-cutting cycle,” said Gruie. “We believe the Fed will keep the door open for further rate cuts.”
Government bonds fell, with the yield on South Africa’s benchmark 13.5 percent security due September 2015 gaining 2 basis points to 9.46 percent. Yields move inversely to bond prices. (Bloomberg)
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