Bloomberg News

Rand Slumps to 4-Month Low on Europe Debt, JPMorgan Loss

May 14, 2012

The rand depreciated for a fifth day, the longest losing streak since September, as commodities retreated to their cheapest this year and stocks tumbled on growing concern Greece will exit the single European currency.

South Africa’s currency fell as much as 1.4 percent to 8.2100 per dollar, the weakest level this year. It traded 1.2 percent down at 8.1934 per dollar by 4:05 p.m. in Johannesburg, bringing its decline this month to 5.1 percent. The yield on the nation’s 6.75 percent bonds due 2021 climbed seven basis points, or 0.07 percentage point, to 7.79 percent, the highest on a closing basis since April 16.

Alexis Tsipras, who heads Greece’s anti-bailout Syriza party, won’t attend a meeting called by President Karolos Papoulias today, the Athens-based party said in a statement. Syriza rejected a unity government last week following inconclusive elections on May 6. Greece may face another vote unless leaders can agree on a new coalition. Emerging market stocks fell to a four-month low and the Standard & Poor’s GSCI Index declined for a ninth day. Commodities account for 45 percent of South Africa’s exports.

“The rand remains under considerable pressure as Greece looks like it’s sliding towards a euro zone exit” John Cairns and Josina Solomons, currency strategists at Rand Merchant Bank in Johannesburg, said in e-mailed comments. “Risks are clearly for further losses on both the euro and the rand.”

The rand often moves in tandem with the euro, with a statistical correlation of 0.7 over the past year. A value of 1 would mean they moved in lock step.

China

The rand extend its decline after China cut banks’ reserve requirements for the third time in six months after industrial production, new loans and retail sales grew less than forecast last month, signalling the slowdown in the world’s second- largest economy may be steeper than expected.

Greek withdrawal from the euro area was “technically” possible yet would damage the euro, European Central Bank Governing Council member Patrick Honohan said in Tallinn on May 12. The euro area accounted for 22 percent of South Africa’s exports last year.

“With the Greek political crisis far from resolved, there is likely to be more bad news for investors to trade on which will guide short-term decision making and direction,” George Glynos, an economist at Johannesburg-based ETM Analytics, wrote in e-mailed comments today. “That the rand may have under- performed in recent weeks does not reflect much other than the local unit’s link to commodities that have also come under some pressure.”

Price Swings

The rand’s three-month implied volatility against the dollar rose 45 basis points to 16 percent today, the highest since Feb. 23, indicating that options traders see wider price swings in coming weeks.

The yield on South Africa’s $1 billion of 8.875 percent bonds due 2022 dropped one basis point to 3.87 percent. The extra yield investors demand to hold the debt rather than U.S. Treasuries widened by 12 basis points to 213 basis points, the most since April 10.

The cost of insuring the nation’s foreign-currency debt rose 11.1 basis points today to 171.1 basis points, the highest since Feb. 17, according to data compiled by Bloomberg. The move was the biggest in a day since Jan. 4.

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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