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The rand declined for a fourth day, extending its biggest weekly loss in six weeks, and bonds gained on concern slowing growth in China and Europe will damp prospects for South Africa’s exports.
South Africa’s currency retreated as much as 0.5 percent to 7.7488 per dollar, and traded 0.1 percent weaker at 7.7130 as of 3:10 p.m. in Johannesburg. It has declined 2.1 percent this week, the most since the period ended Feb. 10. The yield on the nation’s 77 billion rand of 13.5 percent bonds due 2015 dropped one basis point, or 0.01 percentage point, to 6.85 percent.
A leading economic index for China rose 0.8 percent in February from the previous month to 227.2, the Conference Board said today, citing a preliminary reading. That compares with 1.5 percent gain in January that was revised down from 1.6 percent. An index of euro-area manufacturing and services contracted more than economists forecast in March. China and the euro region together buy 36 percent of South Africa’s exports.
“Risk aversion has predictably increased and the fundamentals suggest that there is unlikely to be a near-term swing back towards a more growth-supportive environment,” George Glynos, an economist at Johannesburg-based ETM Analytics, wrote in e-mailed comments today. “It is unlikely that the rand will be allowed to make any meaningful recovery.”
The rand may decline to 7.80 per dollar after breaching 7.68, seen as a significant resistance level, Glynos wrote. The likelihood of the rand trading at 7.80 per dollar in the next week was 64 percent, implied volatility from options monitored by Bloomberg showed.
The premium of options contracts to sell the rand in three months over those to buy it rose 51 basis points today to 4 percentage points, the highest in two months, according to data compiled by Bloomberg. The so-called risk reversal rate was as low as 3.15 percentage points on March 13.
“The risk-off trade has been quite broad-based,” Bartosz Pawlowski, the London-based head of emerging-markets foreign- exchange strategy, said in e-mailed comments. “It is unsurprising that the rand has suffered, particularly as the consumer price index for February surprised to the downside yesterday.”
The rand declined 0.7 percent yesterday after a report yesterday showed inflation in Africa’s biggest economy slowed in February for the first time in a year, prompting traders to pare bets the central bank will raise interest rates this year.
Three-month forward-rate agreements starting in December dropped six basis points today to 5.90 percent. The contracts, which give an indication of traders’ expectations of interest rates, have declined from as high as 6.08 percent on March 21.
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