Besieged rand plumbs new lows

Local economy and US policy tightening fears add pressure Our members can’t afford to take these peanuts that they are putting on the table.

THE RAND pushed to fresh 14year lows against the dollar on Friday, but recovered slightly following a week of heavy losses triggered by China’s devaluation of the yuan.

The rand faced off to a stronger dollar, and was at its weakest against the pound, hit by worries about the local economy and prospects of imminent US policy tightening.

By Friday, the rand had firmed to R12.8005 against the dollar, soothed by signs China’s central bank had ceased pushing its currency lower to revive its slowing economy.

The rand, which wound up paring losses after tumbling to a new 14-year low of R12.8895, shed close to 2 percent last week, edging nearer to the R13 psychological mark against the dollar, as it consistently failed to hold breaks below R12.80.

“Technical barriers around the psychological R13 per dollar mark will continue to be tested in the run-up to an expected start of US monetary policy normalisation next month,” analysts at NKC African Economics wrote.

The dollar rose after July producer prices grew 0.2 percent, which may give the US Federal Reserve room to raise interest rates at its policy meeting next month.

Yields on bonds ticked up, with the benchmark paper due in 2026 adding 1 basis point to 8.175 percent.

Wage strikes

The threat of wage strikes in the gold sector brought back to the fore investors’ concerns about South Africa’s ailing economy, which was grappling with its worst electricity crisis since 2008, analysts said.

The two biggest unions at gold mining companies, the National Union of Mineworkers (NUM) and the Association of Mineworkers and Construction Union (Amcu) said on Thursday that wage negotiations had broken down, bringing the industry closer to a strike.

The rand stumbled to a session low of R12.8895 against the dollar, the weakest it has been since December 2001.

By 5pm on Friday, it was at R12.7973, on track for its biggest weekly loss since the week ended July 24. It also fell to a record low of R20.1071 against the pound. The rand was among the five weakest performers against the dollar in a basket of emerging market currencies tracked by Reuters.

The currency tends to be vulnerable to bouts of emerging market sell-offs because South Africa relies heavily on portfolio inflows to plug its current account deficit.

“The rand looks edgy at weak levels, at risk from data and with one eye still on China,” Rand Merchant Bank analyst John Cairns said, referring to the devaluation of China’s yuan, which rattled markets earlier last week.

“Local news is worrying as the breakdown of wage talks raises the prospect of a strike in the gold industry,” he added.

David Sipunzi, the general secretary of NUM, said: “The talks have collapsed in the sense that the Chamber of Mines has gone back to the original offer. If the attitude remains the same, we cannot rule out a strike.”

Pressure

A strike would add pressure on the mining industry, which is hurting from lower commodity prices and facing job cuts.

A five-month strike at platinum mines helped cut economic growth to 1.3 percent last year, the slowest pace since the 2008/09 recession.

The chamber had offered a final offer of wage increases of between 9 percent and 18 percent for entry-level workers. The NUM wants a monthly wage of R9 500 up from R5 700, while Amcu wants R12 500.

After the impasse, the companies had reverted to the “firm offer” made on June 29, which proposed entry-level workers receive wage increases of as much as 13 percent, the chamber said. Jimmy Gama, Amcu’s treasurer, said: “Our members can’t afford to take these peanuts that they are putting on the table.”

The only way forward left for the workers was to approach the Commission for Conciliation, Mediation and Arbitration, he said.

Ratings agency Moody’s, in a credit report on South Africa last week, cited a strike in the gold sector as a potential risk to economic growth prospects.

“The prospect of gridlock in the gold mining sector wage negotiations and controversies between the government and several mining companies that are planning lay-offs and mine closures on top of energy constraints add a further downside risk to our growth figures.”

Gold has dropped 5.7 percent this year