The rand declined, paring its first weekly gain in five, amid speculation investors in South Africa’s renewable-energy program are hedging the costs of importing machinery. Bond yields rose for a third day.
Successful bidders in the nation’s second round of wind, solar and hydro-power projects have to complete financing arrangements today for as much as 15.9 billion rand ($1.6 billion) of imports, according to research by Futuregrowth Asset Management. Hedging of import costs are contributing to the rand’s decline, said Bruce Donald, a currency strategist at Standard Bank Group Ltd.
“Hedging in both the currency and interest-rate markets was likely a significant flow trigger for the latest rout,” Donald said in an e-mailed report today. “Key technical levels have been broken and confidence in the currency has clearly been shaken” during its 9 percent slump in the past month to a four-year low, he said.
The rand declined 0.8 percent to 9.9423 per dollar as of 10:47 a.m. in Johannesburg, paring its gain this week to 1.6 percent, the first advance since the five days ending May 3. Yields on benchmark 10.5 percent bonds due December 2026 rose two basis points, or 0.02 percentage point, to 7.84 percent for an increase of 24 basis points this week.
The rand extended declines after the central bank said South Africa’s foreign-currency reserves dropped the most in four years in May after the government repaid a loan. Gross reserves fell 4.3 percent from the previous month to $48.2 billion, the Pretoria-based central bank said on its website today. Net reserves declined to $45.4 billion from $45.8 billion in April.
South Africa repaid a loan of 1.3 billion euros ($1.7 billion) last month, while a stronger dollar cut the value of holdings of other currencies in reserves, the central bank said. The bank has been building reserves to act as a buffer against currency volatility.
The country, where utility Eskom Holdings SOC Ltd. is struggling to meet rising power demand with coal-fed plants, is expanding capacity through a 100 billion-rand program to add 3,725 megawatts from renewable sources by 2016. South Africa’s investment in clean energy grew more in 2012 than any other country, according to data compiled by Bloomberg.
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