Bloomberg News

Rand Falls 1st Day in Three as Greece Concern Saps Risk Appetite

June 20, 2011

June 20 (Bloomberg) -- The rand weakened for the first day in three against the dollar as concern Greece won’t avoid a debt default sapped demand for riskier emerging-market assets.

The rand declined as much as 1 percent to 6.8286 per dollar and traded 0.3 percent weaker at 6.7847 as of 4:07 p.m. in Johannesburg. It depreciated 0.3 percent to 9.7049 per euro.

The rand pared its losses as the euro rallied after European leaders reassured investors a solution would be found to spare Greece from default on its debts, easing concern about a spreading regional credit crisis. The MSCI Emerging Market stock index tumbled to the lowest level in three months, the Standard & Poor’s GSCI commodities index fell for a fourth day, and South Africa’s benchmark stock index dropped to its lowest since March 16.

“People are worrying that there is going to be more bad news out of Greece,” Ion de Vleeschauwer, chief dealer at Bidvest Bank, which runs South Africa’s largest chain of moneychangers, said by phone from Johannesburg. “The rand’s move is largely due to the euro starting the week weaker.”

The rand often moves in tandem the euro, with a statistical correlation of 0.823 over the past month. A value of 1 would mean they moved in lock step. The eurozone accounts for 45 percent of South Africa’s exports and 34 percent of its imports, according to South African Revenue Service data.

Greece needs parliamentary approval of a 78 billion-euro ($111 billion) package of budget cuts to ensure the payment of a fifth loan under last year’s 110 billion-euro bailout. Euro-area finance ministers pushed Greece to pass laws to cut the deficit and sell state assets, and left open whether the country will get the full 12 billion euros promised for next month.

EU, IMF

Luxembourg’s Jean-Claude Juncker said Italy was not in danger amid the euro area’s debt crisis. Juncker said Greece’s Papandreou had assured him the government would do everything necessary to ensure financial aid from the European Union and International Monetary Fund.

Concern about Greece’s debt crisis and global economic growth outweighed calls at the weekend by Julius Malema, the leader of the youth wing of the ruling African National Congress, for the nationalization of banks and mines, analysts said.

“There is minimal reaction to Malema and the ANC Youth League’s statements in the foreign exchange market,” Ian Cruickshanks, head of treasury strategic research at Johannesburg-based Nedbank Capital, a unit of South Africa’s fourth-biggest bank, said by e-mail. “Sentiment remains dominated by the euro and the Greece sovereign debt rescue crisis.”

Bonds gained. The 13.5 percent notes due 2015 added 15 cents to 121.22 rand, driving the yield down four basis points, or 0.04 percentage point, to 7.53 percent. The 10.5 percent securities due 2026 climbed 9 cents to 116 rand, reducing the yield one basis point to 8.61 percent.

--Editors: Ana Monteiro, Linda Shen

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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