Rand weakens to 5-year low and bonds drop on Fed tapering

The rand slumped to a five-year low against the dollar on speculation that the Federal Reserve will end debt purchases this year. South African bonds declined for a second day, driving yields to the highest in a week.

US government data on Thursday may show initial claims for unemployment benefits fell, supporting expectations the world’s biggest economy will be strong enough for the Fed to reduce stimulus that helped fuel demand for emerging-market assets including South African debt. Manufacturing growth in Africa’s biggest gold producer slowed in November, a report may show on Thursday.

"Any data or event that may result in a more aggressive unwinding of the Fed’s extraordinary stimulus measures will weigh on markets that have become overly dependent on the Fed’s ultra-easy monetary policy stance," Theuns de Wet, head of global markets research at Rand Merchant Bank in Johannesburg, said in an email. "The rand remains one of those currencies." 

The rand declined as much as 0.3% to 10.7966 per dollar, the weakest level since October 28, 2008. It traded 0.2% down at 10.7958 by 10:20 am in Johannesburg, bringing its depreciation this year to 2.8%, the most out of 24 emerging-market currencies monitored by Bloomberg.

Yields on benchmark rand bonds due December 2026 climbed four basis points, or 0.04 percentage point, to 8.3%, the highest on a closing basis since January 2. Foreign investors sold a net R677-million of South African bonds on Wednesday, a fifth straight day of sales, bringing outflows this year to R3.44-billion, according to JSE Ltd. data.

US labour
Initial jobless claims in the US probably fell to 335 000 in the week through January 4 from 339 000 in the previous period, according to the median estimate of economists surveyed by Bloomberg before the Labour Department report. Data tomorrow may show employers added 195 000 jobs last month after boosting positions by 203 000 in November, according to a separate poll.

The Fed said after its December 17-18 meeting it will taper bond buying to $75-billion a month starting in January from $85-billion. They will probably reduce purchases in $10-billion increments over the next seven meetings before ending them in December, according to the median forecast in a Bloomberg survey.

Manufacturing growth in South Africa slowed to 0.3% in November from 1.5% the month before, a report may show at 1 pm in Pretoria, according to the median estimate of six economists in a Bloomberg survey. – Bloomberg

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