Rand Depreciates as Oil Falls From 29-Month High, Speculation Bets Reverse

The rand depreciated for the second day against the dollar as oil fell from a 29-month high on speculation investors reversed bets oil prices would rise and the dollar would weaken.

The currency of Africa’s biggest economy declined as much as 0.7 percent to 6.9283 per dollar and traded 0.5 percent weaker at 6.9160 by 3:41 p.m. in Johannesburg.

Crude retreated as much as 2 percent to $103.33 a barrel as speculation that fighting may subside in Libya eased concern supply cuts will spread through the Middle East. Al-Jazeera reported Libya’s Muammar Qaddafi offered to relinquish power. The Organization of Petroleum Exporting Countries has made up for supply cuts in the North African country, Qatar’s oil minister said today.

“The market has become exceptionally short-dollar and long-oil and, if either starts reversing, the rand could face a swift sell-off possibly, back up to 6.95 rand if not 7.03 rand,” Standard Bank Group Ltd. analysts led by Michael Keenan wrote in an e-mailed note from Johannesburg today.

South African Finance Minister Pravin Gordhan said yesterday the “strongish” rand is helping cushion the country from inflation generated by rising global oil and food prices. The comments supported the rand, Keenan wrote.

“The fact that rand bulls did not make more of the aforementioned positive developments could also be a sign that from a risk-reward perspective, participants are reluctant to further increase their long-rand positions,” he wrote.

Rand Strength

The rand has climbed 5.6 percent against the dollar since Feb. 15. The currency strengthened 11 percent in 2010, the second-best performer among more than 20 emerging-market currencies against the dollar after Malaysia’s ringgit. That’s helped to keep inflation inside the central bank’s 3 percent to 6 percent target range, enabling the bank to reduce its benchmark interest rate to a 30-year low of 5.5 percent.

South African bonds fell for a fourth day after Moody’s Investors Service cut Greece’s credit rating by three notches yesterday, curbing demand for higher-yielding, emerging-market assets.

The 13.5 percent bond due September 2015 fell 9 cents to 120.741 rand, the lowest level since Oct. 28, 2008. The yield rose by 2 basis points to 7.94 percent.

The Finance Ministry in Athens yesterday called the move, which sent its rating to B1 from Ba1, “completely unjustified.” Moody’s said lagging tax collection and “implementation risks” would make it more difficult to reach budget-cutting targets in a 110 billion-euro ($153 billion) bailout.

The downgrading of Greece’s sovereign rating by Moody’s “hurt European peripheral debt and more generally damaged sentiment to the high-yielding component of the asset class,” the Standard Bank analysts wrote. “Today is likely to see further upside to South African rates.”

To contact the reporter on this story: Chris Kay in London at ckay5@bloomberg.net

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

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