Fed stimulus outlook sees rand weaken for the second day

South Africa’s rand declined for a second day on speculation the Federal Reserve will start reducing monetary stimulus next week that drove demand for higher-yielding currencies in emerging markets.

Data on Thursday may show US consumer spending increased last month. Factory-gate inflation in South Africa slowed to 6.1% in November from 6.3% the previous month, a report is expected to show on Thursday, according to the median estimate of 14 economists in a Bloomberg survey.

"Markets continue to abound with theories and rumours regarding the various scenarios regarding the tapering of quantitative-easing measures," Mohammed Nalla, head of strategic research at Nedbank Group in Johannesburg, said in an e-mailed note, referring to US stimulus.

"The effect of this has manifested itself in the price action and volatility levels in the foreign exchange markets" and put pressure on the South African currency, he said.

The rand weakened 0.2% to 10.3947 per dollar as of 9.53am in Johannesburg. Yields on benchmark bonds due December 2026 rose two basis points, or 0.02 percentage points, to 8.26%.

The Fed may begin reducing $85-billion of monthly bond purchases at its December 17-18 meeting, according to 34% of economists surveyed on December 6 by Bloomberg, up from 17% in a November 8 poll.

Retail sales rose 0.6% in November, the most since June, a separate Bloomberg survey showed before a Commerce Department report due at 3.30pm Johannesburg time. – Bloomberg

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