Bloomberg News

Rand Set for Worst Week in two Months as EU Debt Concern Mounts

November 27, 2011

Nov. 25 (Bloomberg) -- The rand declined, set for its worst week in two months against the dollar, as concern mounts that European leaders are struggling to contain the region’s sovereign-debt crisis, damping demand for riskier assets.

South Africa’s currency depreciated as much as 1.4 percent, and traded 1.2 percent weaker at 8.5849 per dollar as of 1:20 p.m. in Johannesburg, taking its drop this week to 4.5 percent. The rand is headed for its biggest five-day drop since the week through Sept. 23, when it lost 7.7 percent. Against the euro, it fell 0.41 percent to 11.3659.

Italy’s borrowing costs surged to the highest in 14 years, at an auction of Treasury bills today, after German Chancellor Angela Merkel yesterday again ruled out joint euro-area borrowing and an expanded role for the European Central Bank in fighting the crisis. Portugal’s sovereign debt rating was cut to so-called junk by Fitch Ratings yesterday, while Hungary also lost its investment grade at Moody’s Investors Service.

“Worries over Europe are likely to resurface as the region’s leaders are seemingly no closer to common ground,” Nomvuyo Guma, a Johannesburg-based currency strategist at Standard Bank Group Ltd., and colleagues wrote in e-mailed comments. “The rand is thus likely to continue on its weakening trajectory in the near term.”

Emerging-market stocks fell to a seven-week low, while the Standard & Poor’s GSCI index of raw materials tumbled for a second day to its minimum level in more than a month. South Africa’s benchmark stock index slumped to the lowest since Oct. 20 as shares in commodity exporters including Anglo American PLc and BHP Billiton Ltd. declined.

“The reality is that the situation in Europe has not improved at all,” Quinten Bertenshaw, a Johannesburg-based analyst at Tradition Analytics, and colleagues said in e-mailed comments. “The euro zone is still a huge source of volatility and risk.”

Bonds tumbled, driving yields to their biggest weekly rise since January, as traders pared bets the central bank will cut interest rates as the economy slows. Forward-rate agreements fixing three-month interest in six months surged 13 basis points to 5.72 percent today, the highest since Aug. 4.

“Rate cut expectations for the new year have already evaporated,” Standard Bank’s Guma wrote.

The yield on South Africa’s 13.5 percent bonds due 2015 rose 14 basis points to 7.12 percent, the highest since Oct. 23. The yield has climbed 33 basis points this week, the most since the five days ending Jan 21.

--Editors: Ash Kumar, Gavin Serkin

To contact the reporter on this story: Robert Brand in Cape Town at rbrand9@bloomberg.net Stephen Gunnion in Johannesburg at sgunnion@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net


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