Bloomberg News

Rand Slips Most Against Dollar in Month on Greece, U.S. Growth

June 23, 2011

June 23 (Bloomberg) -- The rand declined the most in more than a month against the dollar as investors sold riskier assets after the U.S. Federal Reserve cut estimates for U.S. growth and on concern Greece won’t avoid a debt default.

The currency of Africa’s biggest economy weakened as much as 1.9 percent to 6.8874 per dollar, and traded 1.7 percent down at 6.8762 by 4:21 p.m. in Johannesburg, the biggest retreat on a closing basis since May 11. It gained 0.1 percent to 9.7317 per euro.

The dollar rose against all its major counterparts after Federal Reserve Chairman Ben Bernanke signaled yesterday the central bank won’t add to stimulus measures, known as QE2, that could erode the value of the currency. The Standard & Poor’s GSCI raw materials Index headed for a four-month low while gold and platinum, which account for 20 percent of South Africa’s exports, tumbled. Applications for jobless benefits in the U.S. increased 9,000 in the week ended June 18 to 429,000, Labor Department figures showed.

“With the end of QE2 it seems that it’s a risk-off trade,” Jim Bryson, head of foreign exchange trading at Rand Merchant Bank, a unit of South Africa’s second-biggest bank, said by phone from Johannesburg. “There is genuine dollar strength coming through.”

The Fed yesterday reiterated a pledge to keep interest rates near zero and said it will end a $600 billion bond- purchase program as scheduled this month, even as Bernanke said the recovery is progressing “more slowly” than expected. The economy will expand between 2.7 percent to 2.9 percent this year, down from forecasts ranging from 3.1 percent to 3.3 percent in April, it said.

Rand Estimate

“The rand is up against a firmer dollar, and rand bulls also have to contend with lower commodity prices and declining global equity markets,” Standard Bank Group Ltd. analysts led by Johannesburg-based Michael Keenan said in a research note.

The rand may weaken to 6.92 per dollar after breaching a so-called resistance level at 6.82, the Standard Bank analysts wrote. Resistance levels occur where traders cluster orders to buy or sell a currency.

The likelihood that the rand will decline to 6.92 per dollar within a week is about 66 percent, implied volatility from options trading monitored by Bloomberg showed.

Concern that Greece won’t approve austerity measures that are a condition for a second debt bailout also weighed on the rand, the Standard Bank analysts said. The euro declined against all but two of its 16 major peers before European leaders begin a two-day summit in Brussels today to discuss Greece’s financing needs as the nation struggles to stave off default.

Euro Rate

“Greece survived to fight another day, but all they’ve done is put off the inevitable,” Ian Cruickshanks, head of treasury strategic research at Johannesburg-based Nedbank Capital, a unit of South Africa’s fourth-biggest bank, said by phone. “The euro is under pressure, and the euro is always a good leading indicator for the rand.”

The 17-nation currency accounts for 45 percent of South Africa’s exports and 34 percent of its imports, according to government data. The rand often tracks the euro, with a statistical correlation of 0.85 in the past month. A value of 1 would mean they moved in lock step.

Bonds fell for a second day. The 6.75 percent securities due 2021 fell 21 cents to 88.92 rand, driving the yield up four basis points, or 0.04 percentage point, to 8.44 percent.

--Editors: Ana Monteiro, Alex Nicholson

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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