Bloomberg News

Rand Reverses Gains Versus Dollar as Europe Debt Concern Lingers

July 13, 2011

July 13 (Bloomberg) -- The rand declined for a fourth day, reversing an earlier gain, as importers bought dollars, betting South Africa’s currency will weaken as Europe’s sovereign-debt crisis damps demand for riskier assets.

The rand weakened as much as 0.6 percent to 6.9181 per dollar and traded 0.3 percent down at 6.9020 as of 3:01 p.m. in Johannesburg, bringing its retreat in the past four trading days to 3.3 percent. It slid 0.7 percent to 9.6965 per euro.

Ireland yesterday became the third euro-area nation after Portugal and Greece to have its credit rating cut to below investment grade. Moody’s Investors Service cut Ireland’s rating to Ba1 from Baa3, saying the nation will likely need more rescue financing. The downgrade came two days after the European Central Bank said a European bailout fund may have to be doubled to cover a crisis in Italy, and euro-region finance ministers failed to agree on a solution to Greece’s debt problems.

“The crisis is certainly not over, as shown by the latest rating downgrade of Ireland to junk status, and we should expect continued volatility, John Cairns and Nema Ramkhelawan, currency strategists at Rand Merchant Bank in Johannesburg, wrote in a research note. ‘‘Trying to navigate these markets will be as dangerous as crossing a road in Rome.’’

Earlier, the rand gained as much as 0.9 percent, snapping a three-day decline, after China reported economic growth and industrial output increased more than analysts’ estimates, driving commodity prices higher. Importers took advantage of the rally to buy dollars, said William van Rijn, a currency trader at Johannesburg-based Nedbank Group Ltd.

Risk-Premium Increase

‘‘We saw fairly sustained dollar buying from importers’’ after the rand’s early gain, Van Rijn said by phone. ‘‘There is still nervousness in the market, we’re just waiting for the next bout of bad news.”

The premium of three-month options contracts granting the right to sell the rand versus the dollar over those to buy rand rose 15 basis points, or 0.15 percentage point, to 3.85 percentage points, the highest on a closing basis since Jan. 6. The so-called risk-reversal premium indicated options traders believe the rand is more likely to weaken than strengthen against the dollar in coming weeks.

--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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