Rand Weakens for Sixth Day as Europe Debt Concern Curbs High-Yield Demand

The rand weakened for a sixth day versus the dollar as Europe’s debt crisis threatened to deteriorate and China took more aggressive steps to cool its economy, curbing investor appetite for higher-yielding assets.

South Africa’s currency depreciated as much as 0.7 percent to 7.0152 per dollar and traded 0.3 percent weaker at 6.9860 at 5:25 p.m. in Johannesburg, from a previous close of 6.9650.

European Central Bank council member Miguel Angel Fernandez Ordonez asked Ireland to make a “final decision” on its fiscal crisis to calm markets, underscoring pressure on Ireland to accept a bailout and help reverse a sell-off among the euro- region’s deficit-laden nations. Greece’s budget shortfall last year was revised to 15.4 percent of gross domestic product from 13.6 percent, making it the largest in the euro region, Eurostat said.

“The biggest pressure on the rand is coming from the debt problems in peripheral Europe,” Brigid Taylor, a currency analyst at Rand Merchant Bank in Johannesburg, said in a telephone interview. “The China issue is also a bit of a negative for commodity-based currencies like the rand.”

Commodities fluctuated on concern that China may take more tightening measures after it ordered its four biggest banks to cease loans to property developers and U.S. retail sales rose 1.2 percent in October, the most since March.

Bonds, FRAs

Bonds in Ireland, Portugal and Greece have plummeted since EU leaders agreed on Oct. 29 to establish a new rescue fund from 2013 that would require investors to cover a portion of future bailout costs. Germany is pressing Ireland to seek aid before a Nov. 16 meeting of European finance ministers to calm market volatility and win agreement on the EU plan to make investors help pay for future bailouts, a German government official said.

Government bonds fell in South Africa, with the benchmark 13.5 percent security due September 2015 declining 16 cents to 126.03 rand. The yield on the bond rose 3 basis points, or 0.3 percentage point, to 7.04 percent.

Forward-rate agreements, or FRAs, showed money-market investors reduced bets the South African Reserve Bank will lower its 6 percent main interest rate when it announces its next decision this week on Nov. 18. The cost of three-month contracts for cash due in one month added 2 basis points to 5.7235 percent.

“Although the market is priced for a 50 basis-point cut this week, we think the Reserve Bank might leave rates unchanged,” said Taylor. “If a rate cut comes it might only be in January.”

The so-called 1x4 FRA contract fell to 5.69 percent on Nov. 4, the lowest since the central bank first introduced the repurchase rate in 1999.

To contact the reporter on this story: Garth Theunissen in Johannesburg gtheunissen@bloomberg.net

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

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