THE rand breached 10 to the dollar for the first time in more than four years on Thursday after an attempt by the country’s president to allay concerns over labour unrest misfired badly.
Remarks by President Jacob Zuma at a hastily-called news conference had the opposite effect to that intended, which coupled with poor monthly revenue and spending data sent bonds to their weakest in two months.
Investors quickly sold the currency after Zuma’s comments that a democracy should not regard strikes as a problem. The rand extended those losses after Glencore Xstrata Plc said as many as 1,500 South African workers had gone on an illegal strike at three of its chrome mines.
The local unit hit a session low of 10.0901, its weakest since March 2009, from Wednesday’s close of 9.82.
The deputy governor of South Africa’s central bank said its commitment to a flexible exchange rate meant it would not intervene in markets to defend the rand, although he said the currency’s recent moves had been exaggerated.
“This commitment should not be misread to suggest that any abrupt and disorderly movements in the exchange rate would not be of concern to us,” Daniel Mminele told analysts and traders at a central bank function. Recent trends showed the rand was growing increasingly sensitive to domestic factors, he added.
National Treasury Director-General Lungisa Fuzile said the currency had been overvalued but had weakened too rapidly.
“Part of a depreciation had to be welcome, in part to stimulate exports and manufacturing,” Fuzile said, adding however that the fall had been “too fast” and that volatility was “disruptive to economic decision-making”.
Fuzile said the rand would stop depreciating and retrace, as happened in 2001 and 2008.
Market watchers said Zuma’s media address disappointed investors by failing to outline concrete steps to resolve the persistent labour strife which has hit mining output in the world’s largest platinum producer.
The press conference came two days after data showed the economy growing at its slowest pace since a 2009 recession.
Offshore investors have sold local debt in the last three weeks, while the rand – vulnerable to sudden swings in foreign portfolio flows due to the liquid nature of local markets – has shed more than 11 percent versus the dollar this month.Advertisement
“There have been several negatives in the last month that have left both local and international investors feeling nervous and this culminated in today’s rand blowout,” said Alvin Chawasema, a bond trader at Renaissance BJM.
Dealers said Zuma’s address did not inspire any confidence.
“The market expected more out of the presidential address, and the worse-than-expected budget deficit saw yields slip 20 basis points from their best levels of the day,” Chawasema said.
The Treasury earlier released monthly revenue and spending numbers for the first month of the 2013/14 fiscal year which showed a shortfall of $4 billion.
Yields on the benchmark 2026 bond were steady at 7.445 percent by 1516 GMT, after rising 23 basis points earlier in the session.
The rand needs to breach 10.28 to open up further weakness, but dealers said the currency looked oversold.