Dollar undermines local assets

Local mining counters were undermined yesterday by a resurgent dollar.

Johannesburg - Local mining counters were undermined yesterday by a resurgent dollar, which knocked the rand and sent precious metals prices lower, taking the shares of producers down with them.

The dollar strengthened following hawkish comments by Federal Reserve officials on the path of US interest rates, sending spot gold more than 2 percent lower to four-week lows of $1 222 (R18 610) an ounce while platinum sank more than 3 percent.

Higher interest rates increase the holding costs of gold, which is a non-interest bearing asset.

Impala Platinum tumbled 11.37 percent to R42.97, the biggest decliner of the day. Rival Lonmin also shed 11.16 percent at R29.07 while Anglo American Platinum lost 7.76 percent to R359.50. Sibanye Gold fell 6.27 percent to R54.56. Kumba Iron Ore lost 9.26 percent to R77 after Deutsche Bank cut its target price to R65 from R105.

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“We continue to forecast weak Chinese steel demand in 2016,” the bank said in its commodities quarterly this week, painting a bleak outlook for the product iron ore is ultimately used for.

Johannesburg stocks fell for a second consecutive session, with the benchmark Top40 index closing 1.49 percent lower at 46 613.13. The wider all share index lost 1.54 percent to 52 569.55.

The rand also weakened with inflation data supportive of further rate hikes failing to offset the impact of broad-based dollar strength.

Traders and analysts said the currency remained vulnerable due to uncertainty over domestic fiscal policy, after a senior government official said a family linked to President Jacob Zuma had a hand in the December firing of the finance minister at the time.

The rand fell about 10 percent against the dollar after Nhlanhla Nene’s dismissal, and has remained wobbly amid fears that his successor Pravin Gordhan does not enjoy the president’s backing. At 5pm, the currency was bid at R15.3302, 8.57c weaker than at the same time on Tuesday. Government bonds were similarly weaker, nudging the yield for debt due in 2026 2 basis points higher to 9.325 percent.

The rand had briefly rallied earlier, after official data showed headline inflation quickened to 7 percent last month, its highest in almost seven years, suggesting the central bank will have to raise interest rates further.

But worries about political interference on the country’s economic policy, which have fed fears of a credit rating downgrade, are likely to weigh on the currency.

REUTERS