Bloomberg News

Rand Snaps Two-Day Advance as EU Debt Deadlock Sparks Aversion

June 15, 2011

June 15 (Bloomberg) -- The rand declined for the first day in three against the dollar as European Union officials reached a deadlock on a Greek debt rescue plan, damping investor demand for higher-yielding, emerging-market assets.

The South African currency slipped as much as 1.1 percent to 6.8366 per dollar, and traded 0.8 percent weaker at 6.8132 at 4:35 p.m. in Johannesburg. The rand gained 0.6 percent to 9.7263 per euro.

Emerging-market stocks fell and commodity prices dropped after EU finance ministers failed to reconcile a German-led push for bondholders to share part of the cost of a new Greek aid plan. South Africa’s benchmark stock index slipped 0.8 percent, led by mining companies including BHP Billiton Ltd. and Anglo American Plc.

“Markets are likely to remain cautious until a resolution to the Greek dilemma is found,” John Cairns and Nema Ramkhelawan, currency strategists at Rand Merchant Bank in Johannesburg, wrote in a research note. The rand will likely trade in a range between 6.70 and 6.80 per dollar, they said.

EU finance ministers yesterday agreed to convene again on June 19 to resolve their differences over a rescue for Greece, which was downgraded this week to the world’s lowest credit rating by Standard & Poor’s.

Retail Data

The rand pared its decline after retail sales growth unexpectedly accelerated to its fastest pace in almost four years in April, adding pressure on the central bank to raise interest rates this year as the economy recovers. Sales in South Africa jumped 9.8 percent in April, from 5.3 percent the previous month, according to the statistics office.

“Retail sales growth overshot expectations by a wide margin,” Shireen Darmalingam, a Johannesburg-based analyst at Standard Bank Group Ltd., said in an emailed research note. “The rand could strengthen in the short term.”

Bonds declined for a sixth day, the longest losing streak since Jan. 18. The 13.5 percent notes due 2015 fell 15 cents to 121.10 rand, driving the yield up three basis points, or 0.03 percentage point, to 7.57 percent, the highest since May 25. The 6.75 percent securities due 2021 dropped 11 cents to 88.96 rand, boosting the yield two basis points to 8.453 percent.

--Editors: Stephen Kirkland, Ana Monteiro

To contact the reporter on this story: Robert Brand in Cape Town at rbrand9@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net


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