The South African rand seems to be the world’s worst performing currency this year. According to an article by Bloomberg, an expanding trade deficit and the 12% gold drop since May have pummeled the rand, which has lost 19% against the dollar in 2006.
John Taylor, chairman of New York based hedge fund FX Concepts Inc., which manages $12 billion in currency assets, said; “There are plenty of reasons why South Africa ought to have a weaker currency,”One of the hedge fund’s portfolios, the Global Currencies Fund, has half of its assets wagered against the rand. “We have to feel pretty strongly, as we do, if we have as big a bet with such a volatile currency.”
Trading in rand futures on the Chicago Mercantile Exchange more than tripled in the past four months. The rand is a favorite in the foreign exchange market because it fluctuates against the dollar more than any of the other 16 most actively traded currencies, according to data compiled by Bloomberg.
The rand fell 0.7 percent last week to 7.82 to the dollar, the weakest since June 2003. It is headed for the worst annual performance since tumbling 37 percent in 2001, when the central bank stepped up enforcement of rules limiting international investors’ trading.
South African Reserve Bank Governor Tito Mboweni said last week that the currency was falling in an “orderly fashion,” a signal policy makers won’t seek to stem the slide.
“Exchange rate developments are expected to be positive for export growth,” which “will not be a bad thing,” Mboweni said at a conference in Johannesburg on Oct. 5. A weaker rand also contributes to risks for inflation, he said. The central bank will raise its key rate half a percentage point to 8.5 percent when policy makers meet Oct. 12, according to the median forecast of 16 economists surveyed by Bloomberg News.
Kimon Boyiatjis, who heads Trident Capital, a Cape Town based hedge fund with about $400 million in assets, says he’s been investing in “rand hedge” stocks, because he anticipates the rand will reach 8.25 per dollar this year. “It’s definitely been working for us,” he said.