The rand declined for a second day as the euro weakened against the dollar and commodity prices slid amid concern European leaders are failing to contain the region’s debt crisis, sapping demand for riskier assets.
South Africa’s currency retreated as much as 0.9 before paring its decline, trading 0.1 percent weaker at 7.9602 as of 4 p.m. in Johannesburg. The yield on the nation’s 6.75 percent bonds due 2021 dropped one basis point, or 0.01 percentage point, to 7.93 percent.
Spain is scheduled to sell debt tomorrow and on April 19 as the nation’s borrowing costs rose to a four-month high, approaching levels that prompted Greece, Ireland and Portugal to seek bailouts. Failure to contain the debt crisis may stall economic recovery in the euro region, which buys 22 percent of South Africa’s exports.
“Euro fears are stalking markets once again, sapping risk appetite,” Nomvuyo Guma, a currency strategist at Standard Bank Group Ltd. in Johannesburg, said in e-mailed comments. “The rand has started the week on a much shakier footing, with the euro and other commodity currencies also taking strain from the souring mood.”
The rand pared losses as retail sales in the U.S. beat analysts’ estimates in March. The 0.8 percent gain was almost three times as large as projected and followed a 1 percent advance in February, Commerce Department figures showed today in Washington. The median forecast of 81 economists surveyed by Bloomberg News called for a 1 rise of 0.3 percent.
“There is a bit of support coming though for the rand from Wall Street,” George Glynos, an economist at Johannesburg-based ETM Analytics, said by phone. “The U.S. retail data has definitely eased risk aversion a bit.”
The euro weakened against 11 of its 16 major counterparts after Jaime Garcia-Legaz, a deputy minister in Spain’s economy ministry, said in an April 13 interview that the European Central Bank should “step up purchases of bonds.” The rand often moves in tandem with the currency of South Africa’s largest trading partner, with a statistical correlation of 0.6 over the past year. A value of 1 would mean they moved in lock step.
Spain’s Prime Minister Mariano Rajoy is struggling to convince investors he can get the country’s finances under control after last month refusing to meet deficit targets set by the European Commission and the previous government. Five-year credit-default swaps linked to Spanish bonds jumped to a record at the end of last week, CMA data show.
Three-month copper dropped as much as 1.3 percent on the London Metal Exchange. The contract lost 4.4 percent last week. The Standard & Poor’s GSCI index of raw materials declined as much as 0.8 percent. Metals and other commodities account for 45 percent of South Africa’s exports, according to government data. The Australian dollar also weakened.
The rand’s three-month implied volatility versus the dollar rose for a third day to 15.78 percent, indicating options traders see wider currency swings in coming months.
The yield on the nation’s $1.5 billion of 4.665 bonds due 2024 declined for a third day, falling 33 basis points to 4.15 percent, the lowest since March 13, according to data compiled by Bloomberg. The extra yield investors demand to hold the South African debt rather than U.S. Treasuries dropped 11 basis points to 219 basis points, the least since April 3.
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