Stocks end 6-day winning streak on lower metals
Rand hits 3-1/2 week low vs US dollar
Exchange control relaxation news weigh on rand
October 27, 2009
South Africa's rand fell to a three-and-a-half week low against the dollar on Tuesday after the National Treasury announced easier exchange controls and local stocks fell as lower metal prices weighed.
Finance Minister Pravin Gordhan unveiled a medium-term budget policy statement in which he announced a wider fiscal deficit, a 1.9 percent GDP contraction this year and a further relaxation of exchange controls.
The rand fell 1.3 percent to 7.6979 against the dollar on the day, its weakest level since October 2, according to Reuters data. At 17:45 SA time, it was trading at 7.64 compared with a previous close of 7.59.
"The news that had the major effect is that locals would now be allowed to take more currency offshore than they were allowed," said a Johannesburg-based currency dealer.
"That indirectly tells the market that the Finance Ministry prefers a weaker rand and it has come off sharply on the back of that," he said, adding the next level to watch was 7.80/dollar.
Lower metal prices, of which South Africa is a major exporter, also weighed on the currency and the local bourse.
The JSE's Top-40 Index reversed gains made over the past six sessions, falling 1.57 percent to 23,856.51 points as resource stocks plummeted on softer metal prices.
The All Share Index lost 1.45 percent to 26,518.72 points.
"Commodity prices retreated quite sharply. We've seen a bit of dollar strengthening and the rand weakened quite a bit," said Rigardt Maartens, portfolio manager at PSG Online Securities.
The gold index fell 3.08 percent as spot gold slipped to 3-week lows.
The currency dealer said high labour costs and increasing electricity costs were weighing on the sector's outlook.
Gold miners AngloGold and Gold Fields were some of the major losers, shedding 2.41 percent to R287 and 2.70 percent to R104.35, respectively.
Harmony dropped 2.92 percent to R81.78, while DRDGold the worst performer in the sector, registered a 4.21 percent drop to R455.
Impala Platinum fell 4 percent to R171.60.
South African government bonds firmed as the budget statement showed domestic government debt issuance will likely not increase as much as the market had expected.
The yield on the 2015 bond fell 4.5 basis points to 8.67 percent and that on the 2036 note was down 6 basis points to 8.865 percent on the day.
"The market sold off in recent days on traders pricing in a risk of a huge increase in the amount of bonds that needed to be issued locally," said Mark Southworth, bond dealer at RMB.
"But the actual amount of local government bonds that need to come into the market is less than what the market expected so you've seen investors coming in at these high levels. It looks like it was a generally well-received budget."
The National Treasury said it would auction about 2.8 billion rand worth of bonds a week and foreign issues would continue at around $2 billion a year over the next two years. - Reuters
|
|
