Bloomberg News

Rand Heads for 2nd Weekly Drop to Dollar on Greek Debt Concern

June 17, 2011

June 17 (Bloomberg) -- The rand depreciated to an almost two-week low against the dollar, heading for a second weekly decline, as investors shunned riskier assets on concern Greek’s debt crisis would spread.

The rand slipped as much as 0.7 percent to 6.8893 per dollar after retreating to 6.9055, the weakest level since May 31, yesterday, when South African markets were closed for a public holiday. It traded 0.4 percent weaker at 6.8686 at 10:06 a.m. in Johannesburg. The rand dropped 0.2 percent to 9.7125 per euro.

The MSCI Emerging Markets stock index headed for the lowest level in three months, the Standard & Poor’s GSCI Index of 24 raw materials slumped for a third day and South Africa’s benchmark stock index fell the most in more than three weeks. German and French leaders meet today to discuss how to avert a Greek default.

“It is very difficult to argue against foreigners wanting to lighten up on their exposures to emerging markets,” Tradition Analytics researchers led by Johannesburg-based Quinten Bertenshaw said in a research note. “Out of fear that the situation in Greece could still deteriorate further, trading off a small long-dollar position is still favored today.”

Tradition sees the rand trading in a range between 6.80 and 6.91 today, and advises buying dollars at 6.83 rand. A resistance level, where traders cluster order to buy the currency, may cap the rand’s decline at 6.90, Tradition said.

Greek ‘Haircut’

The euro headed for a second weekly drop versus the dollar and the yen after Luxembourg’s Jean-Claude Juncker said a “haircut” for holders of Greek securities would have unpredictable after-effects. Greece’s Prime Minister George Papandreou named a new Cabinet to petter push through his budget-cutting plans after failing to win over the opposition for a unity government to push through austerity measures.

The rand often tracks the euro, the currency of most of South Africa’s trade, with a statistical correlation of 0.819 over the past month. A value of 1 would mean they moved in lock step.

“Fears over contagion continue to grow, with Spanish debt in particular coming under pressure,” John Cairns and Nema Ramkhelawan, currency strategists at Rand Merchant Bank in Johannesburg, said in a research note. “This risks creating ongoing euro weakness.”

Foreign investors sold a net 1.8 billion rand ($262.6 million) of South African bonds so far this week, after buying 6.8 billion of bonds the previous week, according to JSE Ltd. data. Funds investing in developing-nation shares saw withdrawals of about $829 million during the week ended June 15, Citigroup analysts led by Markus Rosgen wrote in a report today, citing data compiled by EPFR Global.

Bonds Advance

Bonds gained, snapping a seven-day losing streak, as yields at the highest in a month lured investors. The 13.5 percent notes due 2015 gained 7 cents to 121.11 rand, driving the yield down two basis points, or 0.02 percentage point, to 7.56 percent. The 6.75 percent securities due 2021 climbed 12 cents to 89.05 rand, cutting the yield two basis points to 8.41 percent.

“The market got the kick in the pants that it needed,” Rand Merchant Bank analysts led by Theuns de Wet said in a research note. “Buyers have started to come out at these higher levels.”

--Editors: Linda Shen, Ana Monteiro

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

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


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