(Bloomberg) -- South Africa's rand headed for its worst week since August before the release of U.S. jobs data that may bolster expectations for a U.S. interest rate increase this year.
The currency fell as much as 0.9 percent and traded 0.3 percent weaker at 13.9233 to the U.S. dollar as of 12:43 p.m. in Johannesburg, paring its weekly drop to 1.7 percent, the most since the five days through Aug. 26, when a police probe of Finance Minister Pravin Gordhan roiled markets. Friday's rand weakness may also be attributed to risk-off selling in the Asian session as a result of a plunge in the pound, according to Mohammed Nalla, head of strategic research at Nedbank in Johannesburg.
“Everyone's building toward the global story, which is the U.S. nonfarm payrolls this afternoon,” Nalla said by phone. “Given the mix that you've seen in terms of U.S economic data, it's generally been positive and informing rate hike expectations for the tail-end of this year and that's largely been behind a lot of the slide that you've picked up in the rand for this week.”
The chances of a U.S. interest rate increase in 2016, which would draw capital away from emerging markets to the dollar, have risen to almost 64 percent, from 51 percent at the start of last week. The rand is particularly vulnerable to shifts in Fed policy as the country relies on portfolio flows into stocks and bonds to finance a current-account deficit forecast to average 4 percent of gross domestic product in 2016.
Foreign investors sold a net 3.35 billion rand ($240 million) of South African bonds on Thursday, according to JSE Ltd. data, paring inflows this year to 59.5 billion rand. U.S. nonfarm payrolls increased by 172,000 in September, compared with 151,000 the previous month, data may show on Friday, according to a Bloomberg survey of economists.
Inflows Absorbed
The rand also lost ground as data suggested the South African Reserve Bank was absorbing inflows from Anheuser-Busch InBev NV's purchase of SABMiller, rather than allowing the money to flow through the market. South Africa's gross reserves rose to $47.25 billion in September from $45.71 billion in August, according to the central bank.
The rise suggests the central bank added about $2 billion of the estimated $8 billion of inflows to its reserves, according to Rand Merchant Bank. It may continue to do so until the transaction is concluded on Oct. 10, the lender said in an e-mailed note.
“There's this hypothesis out there that you've already seen some pre-positioning on the SABMiller deal, and that was responsible for a lot of the strength you saw coming through in mid-September,” Nalla at Nedbank said. “There is this view that the SABMiller deal would have been rand supportive.”
To contact the reporter on this story: Neo Khanyile in Johannesburg at nkhanyile@bloomberg.net. To contact the editors responsible for this story: Robert Brand at rbrand9@bloomberg.net, John Viljoen
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