South Africa's rand shows its mettle as iron ore prices surge

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

The rand has strengthened 2.5 percent against the dollar since Jan. 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 Group Ltd., with a one percent rise in the commodity equating to about a 0.5 percent gain for the currency. The mineral accounts for 12 percent of total South African mining production and close to 18 percent 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 Ltd., South Africa’s biggest producer, have jumped 18 percent since the dam collapse.

(By Colleen Goko)