South Africa’s rand lurched to its weakest levels in five weeks on Monday, shedding more than three percent of its value against the dollar as offshore players decided to bet against the volatile unit.
At 1210 GMT the unit was trading 24 cents weaker at R10,47 against the dollar — its weakest level since June 28, when it touched R10,50, according to Reuters’ data. Traders said that the level was likely to hold, but nothing was certain.
Hedging against other emerging currencies in the wake of new woes in Latin American was cited as the main trigger for the abrupt move, but traders said a new draft mining charter and its impact on South African stocks had unnerved foreign investors.
”The main thing being spoken about is the mining charter. People are not happy with it, and they think it could be the start of other bad things,” a Johannesburg-based trader said.
The proposals — which were leaked to the media in late July — aim to give black South Africans a bigger role in the white-dominated mining sector and propose that control of all new projects must rest with new black business in 10 years.
It has knocked off a fifth of the value of shares in Anglo American, the country’s biggest miner, since details of the bill first emerged.
Some London-based traders also cited news last week of the indeterminate outcome of an official inquiry into the currency’s slide in 2002 and renewed concerns about a growing crackdown on political opposition in neighbouring Zimbabwe.
A majority report on the rand’s historic 37% plunge against the dollar last year said there was no clear reason for the currency’s slide, but a dissenting minority report said the process had been inadequate and urged further investigation.
”As it was such a quick move weaker, we should see some retracement — in any case I think R10.50/55 should hold,” a domestic trader said.
The rand also weakened against key crosses, sliding by 19 cents to R10,25 against the euro — the currency of its main trading partner — and by 23 cents to R16,32 against the pound.
The rand had rallied against the US unit for most of this year, erasing much of its steep losses late in 2001, but has given up its best levels after failing to hold below R10/dollar for any length of time.
It hit a record low of R13.85/dollar on December 20. Bonds weakened in a knee-jerk reaction to the softer currency, with attention focused on news that arms group Denel would soon issue an inaugural bond.
So far the company has not released any details on the size or maturity of the issue, but traders said they expected an issue of at least one billion rand, with a maturity of five to seven years.
”It’s not likely to have much impact because of the overall lack of supply,” Barclays bond analyst Leon Myburgh said.
The yield on the benchmark R153 due 2010 was up three basis points at 11,31%, while the yield on the most traded R150 due 2005 rose five basis points to 11,32%. – Reuters