BLBG: Rand Rebounds From Six-Year Low After Biggest Slump Since 1994
By Garth Theunissen
Oct. 16 (Bloomberg) -- South Africa's rand rebounded from its weakest in more than six years against the dollar on speculation yesterday's loss, the biggest since at least the end of apartheid in 1994, was exaggerated.
The rand rose versus all 16 most-actively traded currencies monitored by Bloomberg after its 14-day relative strength index, a technical chart used by traders, climbed as high as 81 today. A reading above 70 indicates the rand has weakened too much. Earlier the rand slipped to the lowest level since August 2002 as Asian and European equities tumbled and U.S. stock-index futures slid on concern a global economic recession will erode demand for the country's commodity exports.
``The rand has fallen too much, too fast,'' said Jim Bryson, head of foreign exchange trading in Johannesburg at Rand Merchant Bank. ``You'd expect it to come back because after a fall like that, exporters start repatriating foreign earnings.''
The rand rose as much as 6.5 percent to 9.9575 per dollar, and was at 9.9650 by 10:43 a.m. in Johannesburg. It advanced 6.3 percent to 13.4223 versus the euro.
South Africa's currency plunged as much as 18 percent in late trading yesterday as U.S. stocks dropped by the most since the crash of 1987, sparked by the biggest decline in retail sales in three years.
``This was an unbelievable blowout,'' said Marc Copeland, a Cape Town, South Africa-based currency trader at Investec Asset Management, which oversees about $60 billion. ``Investors are scrambling for money, they have been hurt everywhere around the world and they are getting out of these emerging markets because they are too risky.''
`Caught the Flu'
The prospect of a global economic slowdown has prompted investors to dump higher-yielding assets, hurting emerging-market currencies from Brazil to Indonesia even as policy makers in Europe and the U.S. pump money into financial markets to alleviate the worst banking crisis since the Great Depression.
``With emerging markets under pressure, while everyone else is coughing we've caught the flu,'' said Bryson. ``It's going to be a wild day.''
The rand may ``retest today's lows, or fall to at least 10.60 to the dollar,'' if it is unable to recover above 10.10 against the U.S. currency, Bryson said. ``The speed of the move makes it difficult to call. I expect it will be a horrible day for our stocks too.''
Stocks fell around the world, with Europe's Dow Jones Stoxx 600 Index losing 1.8 percent and the MSCI Asia Pacific Index dropping 8.5 percent, the biggest drop on record. South Africa's FTSE/JSE Africa All Share Index slipped as much as 0.8 percent.
Platinum Slumps
The prices of commodities, which South Africa relies on for export income, slumped. The UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials fell 4.7 percent yesterday. Platinum, which competes with gold as South Africa's biggest export, slipped 6.2 percent today.
Government bonds slumped, with the yield on South Africa's benchmark 13.5 percent security due September 2015 climbing 27 basis points to 9.28 percent. The yield on the 13 percent note maturing in August 2010, which is more sensitive to interest-rate expectations, rose 33 basis points to 9.53 percent. Yields move inversely to bond prices.
The weakening rand is clouding the inflation outlook in South Africa, Tito Mboweni, the country's central bank governor, said late yesterday in a speech in the capital, Pretoria. ``It's a terrible situation to be in,'' he said.
To contact the reporters on this story: Garth Theunissen in Johannesburg gtheunissen@bloomberg.net
