Bloomberg News

Rand Falls to Two-Week Low Amid Concern About Europe Debt Crisis

November 16, 2011

Nov. 15 (Bloomberg) -- The rand declined to a two-week low against the dollar after a surge in Spain and Italy’s borrowing costs fueled concern that Europe’s debt crisis will worsen, damping demand for riskier, emerging-market assets.

South Africa’s currency retreated as much as 1.6 percent to 8.1487 per dollar, the weakest since Nov. 1, and traded 1.4 percent weaker at 8.1299 as of 2:52 p.m. in Johannesburg, making it today’s worst performer among more than 20 emerging-market currencies against the dollar, according to data compiled by Bloomberg. Against the euro, the rand depreciated 0.8 percent to 11.0146.

The euro, the currency of South Africa’s biggest trading partner, declined against the dollar and yen as Italy’s bond yields surpassed the 7 percent mark that prompted Greece, Ireland and Portugal to seek bailouts. Spanish yields rose as the nation raised less than its target at a bond auction today, spurring demand for safer investments.

“If you look at sovereign spreads in Europe, they point to a very real threat of a breaking-up of the euro region,” Ian Cruickshanks, head of treasury strategic research at Johannesburg-based Nedbank Capital, a unit of South Africa’s fourth-biggest bank said by phone. “It’s a risk-off environment, and the rand is taking strain.”

Spain sold 3.16 billion euros ($4.3 billion) of 12-month and 18-month bills, compared with a maximum target of 3.5 billion euros, the Bank of Spain said. Mario Monti, Italy’s premier-in-waiting, faced political resistance on forming a Cabinet during talks in Rome yesterday.

German Investor Confidence

German investor confidence fell to a three-year low on concern the sovereign debt crisis will push Europe’s largest economy into a recession, while the euro region’s economic expansion failed to accelerate in the third quarter, reports said today.

Emerging-market stocks slumped for the first time in three days and commodity prices fell.

“The rand should trade with a weaker bias as politicians in Europe continue to struggle to convince markets that they are serious about keeping the euro intact,” John Cairns, a currency strategist at Rand Merchant Bank in Johannesburg, wrote in a research note.

South African bonds fell for a fifth day, the longest losing streak since the six days ending June 15, pushing four- year yields to the highest in two months on expectations the central bank will raise interest rates as consumer prices rise.

The yield on 13.5 percent securities due 2015 climbed 15 basis points, or 0.15 percentage points, to 6.84 percent. The yield has soared 46 basis points in the past five days.

Rate Outlook

“We’ve been pushing the view that the Reserve Bank would keep rates unchanged for many more months to come and that the inflation outlook was deteriorating,” Benoit Anne, the London- based head of emerging-markets strategy at Societe Generale SA, said by e-mail. “The market has gradually come round to our view.”

South Africa’s central bank left its benchmark interest rate at 5.5 percent last week, even as inflation is estimated to breach the upper limit of the 3 to 6 percent target range this year. Forward-rate agreements fixing three-month interest in six months climbed 13 basis points today as investors pared bets on an interest-rate cut.

--Editors: Ana Monteiro, Ash Kumar

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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