Rand sucked down again

The rand fell to a six-year low against the US dollar after South Africa's current account deficit narrowed less than economists expected in the third quarter.

The currency touched R11.53 per dollar by late afternoon, trading below R11.50 against the greenback for the first time since October 2008.

The current account shortfall was 6% of GDP, compared with a revised 6.3% in the three months beforehand. The median estimate in a Bloomberg survey was for a gap of 5.8%.

The shortfall is seen a key risk for the value of the rand, as the foreign investment needed to fund the gap could come under pressure next year if the US raises rates.

The rand's slump puts pressure on the SA Reserve Bank to raise interest rates, with derivatives used to bet on rates climbing the most since June.

"The disappointing current account numbers will intensify selling pressure on the rand ahead of this week's credit-rating reviews," Bernd Berg, a London-based emerging market strategist at Société Générale, said by e-mail.

"We think there is a probability of a downgrade this week."

Fitch and Standard & Poor's will publish their ratings reviews for South Africa on Friday.

Fitch rates South Africa's debt BBB, two levels above junk, with a negative outlook.

S&P's rating is BBB-, or one level above junk, with a stable outlook.

Moody's downgraded South Africa last month to Baa2, the second-lowest investment grade, citing slower economic growth and rising government debt.

Yields on government rand bonds due December 2026 rose by four basis points to 7.8%. Yields on forward-rate deals starting in 12 months, used to speculate on interest rate moves, climbed 18 basis points to 6.82%. The contracts, which are benchmarked against the three-month Johannesburg Interbank Agreed Rate of 6.08%, are predicting 74 basis points of rate increases in the next year.

The Reserve Bank left the repo rate unchanged last month at 5.75%, saying risks to inflation were "balanced".

"The rand remains the wild card," said Dennis Dykes, chief eco-nomist at Nedbank.

"It is anticipated to come under pressure once US interest rates start to rise around mid-2015, forcing tightened policy in the second half of next year."