The rand weakened for a fourth day as signs of strength in the U.S. economy boosted demand for dollar assets and after Standard & Poor’s retained a negative outlook on South Africa.
The Bloomberg U.S. Dollar Index touched its highest in two weeks amid prospects the Federal Reserve will continue to reduce monthly bond buying after announcing a $10 billion cut. While affirming South Africa’s BBB rating, its second-lowest investment grade, S&P said a deterioration in the nation’s current-account and fiscal deficits may prompt a downgrade.
“The dollar continues to enjoy general support,” Mohammed Nalla, head of strategic research at Nedbank Group Ltd. in Johannesburg, said in e-mailed comments. “Concern is mounting with regard to the local currency” amid low trading volumes that may exacerbate moves, he said.
The rand weakened 0.5 percent to 10.4366 per dollar by 10:13 a.m. in Johannesburg, bringing its decline this week to 1.45 percent. Yields on benchmark rand-denominated bonds due December 2026 rose four basis points, or 0.04 percentage point, to 8.20 percent.
The Fed will probably reduce its bond purchases in $10 billion increments over the next seven meetings before ending the program in December 2014, according to the median forecast of 41 economists in a Bloomberg survey. That matches the $10 billion cut announced two days ago as the U.S. central bank began to unwind the unprecedented stimulus that helped drive investment to higher-yielding emerging-market assets including South African bonds.
Foreign investors bought a net 1.6 billion rand ($154 million) of South African bonds yesterday, boosting purchases this year to 27.1 billion rand, according to JSE Ltd. data.
South Africa needs foreign investment of 19.5 billion rand a month to plug its current-account shortfall, which swelled to 6.8 percent of gross domestic product in the third quarter, according to Standard Bank Group Ltd.
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