Bloomberg News

Rand Fluctuates as Record Gold Prices Weigh Against EU Debt

July 27, 2011

July 27 (Bloomberg) -- The rand fluctuated between gains and losses as investors and traders weighed the advance of gold, a key South African export, against concern that the European Union’s debt crisis may spread.

The country’s currency strengthened as much as 0.7 percent to 6.6285 per dollar, the highest since May 3, after adding 3.5 percent in the previous six days. The rand traded at 6.6755 as of 6:31 p.m. in Johannesburg, against yesterday’s close of 6.6752, and climbed 1 percent to 9.5793 per euro.

Gold rose to as high as $1,628.05 an ounce as investors sought to protect their wealth against the possibility of a U.S. default that may come as soon as next week and cost America its AAA credit rating amid a standoff over the country’s $14.3 trillion debt limit.

The rand pared its advance after Germany’s Finance Minister Wolfgang Schaeuble said his country opposes a “blank check” for the euro-area rescue fund to purchase bonds on the secondary market, prompting investors to sell the euro and riskier, emerging-market assets. The euro dropped against 13 of its 16 most-traded peers.

“The euro lost ground, and that correlation” with the rand “was fairly strong,” said William van Rijn, a currency trader at Nedbank Group Ltd. by phone from Johannesburg. “As the market gave back its gains, and the dollar showed some resilience,” the rand lost ground, he said.

The rand often moves in tandem with the euro, the currency that is used to buy 45 percent of South Africa’s exports, with a statistical correlation of 0.83 over the past month. A value of 1 would mean they moved in lock step.

Bonds gained. The 6.75 percent securities due 2021 added 17 cents to 89.85 rand, cutting the yield three basis points, or 0.03 percentage point, to 8.30 percent.

--Editors: John Kohut, 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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