Johannesburg - The rand extended losses to a third day and headed for the biggest weekly slump since August on concerns that Donald Trump will pursue policies that will spur capital outflows from developing economies and weaken their exports.
The rand fell as much as 2.5% before trading 1.1% weaker at R14.2798 to the dollar by 14:34 in Johannesburg. The weekly decline of 5.2% is the most since the five days ended August 26, when local markets were roiled by concerns that Finance Minister Pravin Gordhan would be arrested.
The most the rand had lost before that was in December, when President Jacob Zuma fired then-Finance Minister Nhlanhla Nene.
Trump has signaled he’ll adopt more protectionist trade policies, while introducing fiscal stimulus that’s likely to hasten US interest rate increases that would draw investment to the dollar and away from high-yielding emerging-market currencies.
Offshore investors sold R5bn ($349m) of South African government rand bonds on Thursday, the most since September 2011, amid a selloff that wiped $1trn off global bond markets.
“The markets suspect that Trump will likely be dollar positive, reflating through fiscal policy, and protectionist,” said Nigel Rendell, a senior emerging-markets analyst at Medley Global Advisors LLC in London.
“That boils down to higher US interest rates and fewer trade opportunities for emerging market economies. Until we know more about what a Trump presidency will be like, the policies and personalities, it will be difficult for emerging market currencies, including the rand, to carve out an independent path.”
Carry unwinds
South African government bonds fell for a third day, with the yield on 10-year rand notes rising 15 basis points to 9.18%, the highest in five months on a closing basis. The government sold R275m of inflation-linked bonds at weekly sale on Friday, after offering R650m.
“What we have, generally speaking, since the US election result is that there is an unwinding of lots of carry trades, so carry is no longer a dominant factor for emerging market currencies,” said Murat Toprak, HSBC’s head of currency strategy for emerging markets in Europe, the Middle East and Africa.
“When you have a steeper curve in the US, when you have core yields in Europe going up, the attractiveness of emerging market assets tends to decline.”
Foreigners sold the most South African stocks in three weeks, while the main Johannesburg stock index slumped 2%, heading for its first decline this week.
© 2016 Bloomberg L.P