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Rand shows its mettle as iron ore prices surge

The rand is closely tracking the fortunes of iron ore.

If you are searching for clues on how the rand will move next, watch the iron-ore price.

The South African currency is closely tracking the fortunes of the raw material, with the 40-day correlation in daily moves climbing to 0.91 this week, the highest since January 2018. A value of 1 would indicate they moved in lock step.

The rand has strengthened 2.5% against the dollar since January 25, when a fatal dam disaster at Vale SA’s Brumadinho mine in Brazil curbed iron-ore supplies, sending the price soaring.

About a quarter of the rand’s moves can be ascribed to iron ore prices, according to Standard Bank, with a 1% rise in the commodity equating to about a 0.5% gain for the currency. The mineral accounts for 12% of total South African mining production and close to 18% of base-mineral exports.

“We are in the top 10 ore-producing countries in the world,” Thanda Sithole, a Johannesburg-based economist at Standard Bank, said in a client note. “The rand therefore naturally has a correlation with iron-ore prices.”

Shares of Kumba Iron Ore, South Africa’s biggest producer, have jumped 18% since the dam collapse.

© 2019 Bloomberg L.P
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