Bloomberg News

South Africa Rand Falls Most in Two Weeks, Yields Fall on Growth Prospects

March 02, 2012

The rand declined the most in two weeks and bonds gained for the first day in three on concern slowing growth in the euro region, South Africa’s biggest trading partner, will dim prospects for the nation’s exports.

South Africa’s currency depreciated as much as 1.1 percent, the most since Feb. 16, and traded 0.9 percent weaker at 7.5081 to the dollar as of 16:22 p.m. in Johannesburg. The currency has gained 1.2 percent this week, its third consecutive five-day advance. It fell 0.3 percent to 9.9312 per euro. The yield on the nation’s 77 billion rand ($7.5 billion) of 6.75 percent bonds due 2021 fell three basis points, or 0.03 percentage point, to 7.87 percent. Bond risk fell to a six-month low.

Euro-area manufacturing shrank for a seventh month and unemployment rose to the highest in more than 14 years, reports showed yesterday, stoking concern that the regional economy may struggle even after the European Central Bank increased lending to banks to shore up the region’s debt crisis. The euro region buys 22 percent of South Africa’s exports, according to government data.

“Markets may well be realizing that after this round of liquidity, believed to be the last, the problems in the Eurozone remain,” Nomvuyo Guma, a Johannesburg-based currency strategist at Standard Bank Group Ltd., said in e-mailed comments. Manufacturing for the euro region and the U.K. was “generally disappointing,” Guma said.

Market Correction

The rand rose to a five-month high on Feb. 29 after the ECB’s injection of liquidity into the region’s banks boosted appetite for higher-yielding assets. That gain may be overdone, a technical indicator showed today.

The stochastic oscillator for the rand versus the dollar was 20.7 today, below the 30 threshold that signals the currency may have appreciated too fast and is poised for a decline. The measure, which tracks the price of a security relative to its highs and lows during a particular period, dropped below 30 yesterday for the first time since Feb. 16.

“In the very near-term, we remain reluctant to continue selling dollars and believe that the market remains ripe for a correction,” George Glynos, an economist at Johannesburg-based ETM Analytics, wrote in e-mailed comments today.

The Standard & Poor’s GSCI Spot Index (SPGSCI) of 24 raw materials fell for the first time in three days and South Africa’s benchmark stock index snapped a three-day rally, led by mining companies including Anglo American Plc and BHP Biliton Ltd.

Raw materials account for 64 percent of South Africa’s exports, according to South African Revenue Service data. The nation has the world’s biggest reserves of platinum, manganese and chromium.

Bonds Gain

South Africa’s $1.5 billion of 4.665 percent bonds gained, driving the yield down six basis points to 4.13 percent, the lowest since the bonds were first sold on Jan. 17. The premium investors demand to hold the debt rather than U.S. Treasuries narrowed three basis points to 2.15 percent, a record low.

Credit default swaps for South Africa’s foreign-currency sovereign bonds fell 5.4 basis points to 153.6 yesterday, the lowest since Sept. 1, according to CMA.

To contact the reporter on this story: 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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