Rand dips to record low as US recovers

The rand slumped to a four-year low and bond yields rose to their highest in eight weeks yesterday on expectations of a tapering-off of stimulus measures in the US and the release of statistics showing that the South African economy is stagnating.

Consumer confidence in the US rose this month and a report due out tomorrow is expected to show that the world's biggest economy expanded by 2.5% in the first quarter of the year.

South Africa's worst economic performance since the 2009 recession is heightening the risk of downgradings of its sovereign debt as the likelihood of prolonged labour unrest increases.

"One leg of the dollar-rand move is simply the strength of the dollar" spurred by "optimism that the US will be in a self-sustaining recovery by next year", said John Cairns, currency strategist at Rand Merchant Bank.

"The moves have been compounded by local factors. Local sentiment is still so extremely negative that the market needs hardly any news to sell off."

The rand depreciated by as much as 0.7%, to 9.8574 to the dollar, the lowest level since March 18 2009.

It traded as low as 9.84 against the dollar, bringing its depreciation this month to 8.6%, the worst performance of 16 major currencies monitored by Bloomberg.

Yields on benchmark 10.5% bonds due in December 2026 rose by 0.13 of a percentage point, to 7.32%, the highest on a closing basis since April 3 and following a 10-basis-point advance yesterday.

The yield has climbed 58 basis points this month.

The chairman of the US Federal Reserve, Ben Bernanke, said last week that the Fed might cut the pace of asset purchases - which have contributed to demand for higher-yielding emerging-market bonds - if there are indications of a sustained improvement in US economic growth.

"Liquidity trades - including in the rand and other high-yielding currencies - have been further hurt by worries that US quantitative easing will be halted sooner rather than later," Cairns said.

South Africa's gross domestic product expanded 0.9% in the first quarter, less than the most pessimistic forecast of 15 economists in a Bloomberg survey, as manufacturing and agriculture contracted, Statistics SA said yesterday.

Slower growth will curb tax revenue and make it harder for the government to rein in its budget deficit, a concern raised by Moody's Investors Service and other rating agencies when downgrading South Africa.

Looming strikes in the mining industry as wage talks get under way are further clouding the outlook.