Cape Town - South Africa’s rand headed for its biggest weekly drop in six as signs the US economy is improving fuelled speculation that monetary stimulus, which fuelled demand for assets in emerging markets, may be reduced.
The Federal Reserve is expected to cut bond purchases next month, according to 65 percent of economists in a Bloomberg survey from August 9-13.
Chairman Ben S. Bernanke told Congress last month that any reduction in stimulus would depend on the economy’s performance.
Reports today will show housing starts and consumer confidence improved, according to economists’ estimates.
Applications for jobless benefits fell to a six-year low while consumer prices increased, reports showed yesterday.
“US data and the impact on the dollar continue to offer the main risk” to the rand, John Cairns, a currency strategist at Rand Merchant Bank in Johannesburg, said in e-mailed comments.
“US Treasury yields have spiked, US equities have fallen sharply, and gold has surged. This is quite bad for the rand.”
South Africa’s currency was little changed at 9.9924 per dollar by 11:13 a.m. in Johannesburg, bringing its retreat this week to 1.8 percent, the most since the five days ending July 5.
Yields on benchmark 10.5 percent bonds due December 2026 were unchanged at 8.40 percent after rising 23 basis points this week.
Foreign investors sold a net 170 million rand ($17 million) of South African bonds yesterday, cutting inflows in the first four days of the week to 375 million rand, according to the JSE Ltd. - Bloomberg News