Bloomberg News

Rand Falls to Month-Low Versus Dollar on Greek Default Concern

September 12, 2011

Sept. 12 (Bloomberg) -- The rand fell to its lowest level against the dollar in more than a month as investors shunned riskier, emerging-market assets on concern Greece will default on its debt, dimming global growth prospects.

South Africa’s currency declined as much as 1.1 percent to 7.3646 per dollar, its weakest level since Aug. 10. It traded 1 percent down at 7.3577 as of 4:22 p.m. in Johannesburg. Against the euro, the rand slipped 1 percent to 10.0441.

The euro, the currency in which 45 percent of South Africa’s exports are based, dropped to its lowest level since 2001 against the yen on speculation German Chancellor Angela Merkel is preparing for a Greek default. Emerging-market stocks fell, driving the benchmark index to its lowest in three weeks, and commodity prices declined for a third day. South Africa’s benchmark stock index plunged as much as 2.8 percent.

“Markets today are reflecting plenty of worry and fear about the European debt issue, with the possibility of Greece going bankrupt, as well as fears of recession in Europe and the U.S.,” Paul Hansen, who helps manage 330 billion rand ($44.9 billion) at Stanlib in Johannesburg, said in an e-mailed research note. The rand “could weaken further if the risk-off trade in world markets continues”, he added.

Bearish bets on the rand are at the highest level in more than a year, according to prices of options contracts monitored by Bloomberg. The premium of options contracts to sell the rand in one month over those to buy the currency rose as high as 5.27 percentage points today, the strongest since June 2, 2010.

Germany Plan

Officials in Merkel’s government are debating how to shore up German banks in the event that Greece fails to meet the budget-cutting terms of its aid package and is unable to get a bailout-loan payment, three coalition officials said on Sept. 9. Merkel is due to hold talks on the debt crisis with European Commission President Jose Manuel Barroso today.

Germany will decide on a course of action after receiving the results of a Greek progress report, a government spokesman said, speaking on the customary condition of anonymity.

The rand extended its decline after consumer confidence slumped to a two-year low in the third quarter, adding to pressure on the central bank to cut its benchmark interest rate to bolster Africa’s biggest economy.

The FNB/BER consumer confidence index dropped to 4 from 11 in the second quarter, First National Bank and the Bureau for Economic Research said in an e-mailed statement today.

“The fall in consumer confidence does not bode well for consumer spending and domestic economic growth prospects,” Tebogo Mosepele, an analyst at Standard Bank Group Ltd. in Johannesburg, wrote in e-mailed comments. The data is “rand- negative from the GDP differential perspective,” he added.

Bonds Drop

Bonds declined for a second day, driving four-year yields to the highest in two weeks. A weaker rand erodes returns on South African debt for foreign investors, who have purchased a net 52.6 billion rand ($7.2 billion) of local debt this year, helping drive a rally that pushed four year-yields to a record low of 6.327 percent on Sept. 8.

The 13.5 percent notes due 2015 dropped 66 cents to 123.73 rand, driving the yield up 16 basis points to 6.655 percent, the highest on a closing basis since Aug. 25. The 6.75 percent securities due 2021 fell 1.26 rand to 92.46 rand, boosting the yield 20 basis points to 7.896 percent.

“It looks like a general risk-off day in South Africa, with bond and equity markets and the rand all suffering,” Rand Merchant Bank analysts led by Theuns de Wet wrote in e-mailed comments. “The markets are not a happy place to be at the moment.”

--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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