South African rand falls as mining data disappoints
The South African rand fell to record lows against the US dollar on December 8, 2015, as a slew of disappointing macroeconomic data brought the currency down. The current account deficit widened sharply to $165 billion in the third quarter versus a gap of $124 billion in the previous quarter as sales of foreign goods went up while export growth deteriorated.
On the other hand, gold production fell in October by 7.5% against a decline of 1.8% in the previous month. Mining production contracted in October by 4.6% on a YoY (year-over-year) basis, which was below expectations that predicted a fall of 3.9% but marginally above September’s contraction of 4.7%. On a monthly basis, however, mining production was up by 1.8% in October against a 4.0% decline in September.
Manufacturing production fell
South African manufacturing production for October fell by 2.1% on an annual basis versus an increase of 1.2% in the previous month and expectations of a 0.75% contraction. On a monthly basis, manufacturing production contracted in October by 1.7% against an anticipated decline of 0.30%.
Reduction in sovereign credit rating and debt outlook
Credit rating agency Fitch downgraded South African debt to BBB-, which is one notch above junk status. The agency cited growth performance and weakened estimates of growth potential to be the primary drivers. Also, Standard & Poor’s lowered its outlook on the country’s debt to negative from stable. These rating downgrades were responsible for pulling the South African rand lower by 1.4% on December 7, 2015. The upcoming FOMC (Federal Open Market Committee) meeting in December could put further downward pressure on the South African rand in case of a rate hike, which would lead to huge capital outflows.
Impact on the market
The iShares MSCI South Africa ETF (EZA) fell by 0.64% on December 8, 2015. The ETF, which has been undergoing a free-fall, has exhibited a fall close to 12.2% since November 24, 2015.
South African mining ADRs (American depositary receipts) were trading on a mixed note. AngloGold Ashanti (AU) fell by 1.5% while Sibanye Gold (SBGL) rose by 3.0%. Also, Harmony Gold (HMY) rose by 2.8% while Sasol (SSL) fell by 0.92%.