Bloomberg News

Rand Declines for Fourth Day Before Fed, ECB Policy Meetings

August 01, 2012

The rand declined for a fourth day as investors awaited the outcome of central banks’ policy meetings for clues on more stimulus measures after manufacturing gauges in China and the U.S. shrank.

South Africa’s currency retreated as much as 0.4 percent, and traded 0.1 percent weaker at 8.2648 per dollar as of 4:42 p.m. in Johannesburg. The nation’s 6.75 percent bonds due 2021 yielded 6.66 percent, unchanged from yesterday’s close.

Members of the U.S. Federal Reserve’s Open Market Committee will end their two-day meeting today. While they refrained from introducing a third round of asset purchases at their June session, Chairman Ben S. Bernanke indicated last month that it’s an option. The European Central Bank will announce a policy decision tomorrow.

“Demand for high-yield assets on a global scale will only remain supported if the Fed and ECB live up to the stimulus expectations today and tomorrow,” Quinten Bertenshaw, a Johannesburg-based analyst at ETM Analytics, wrote in e-mailed comments. “As a result there is significant event risk ahead of the policy meetings this week.”

The MSCI Emerging Markets stock index erased gains and the prices of metals including copper and nickel declined after a purchasing managers’ index released today showed China’s manufacturing industry grew at the slowest pace in eight months in July. Manufacturing in the U.S. unexpectedly contracted for a second month in July, adding to signs the global economy is faltering.

Metals and other commodities accounted for 45 percent of South Africa’s exports in 2011, according to government data.

‘Dovish Statement’

“The Fed seems unlikely to announce any major policy change today,” John Cairns and Josina Solomons, currency strategists at Rand Merchant Bank in Johannesburg, said in e- mailed comments. “The most we can hope for is a more dovish statement, which isn’t likely to appease a worried market. Risks are therefore biased towards losses.”

South Africa’s purchasing managers’ index rebounded in July from a 10-month low, rising to 51 from 48.2 in June, Johannesburg-based Kagiso Tiso Holdings said. The median estimate of six economists surveyed by Bloomberg was for the index to decline to 47.5.

To contact the reporter on this story: Stephen Gunnion in Johannesburg at sgunnion@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net


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