Rand Set For Its Worst Week in Two Months as Further U.S. Stimulus Likely

The rand headed for its biggest weekly retreat in two months versus the dollar after the Federal Reserve tempered hopes of more stimulus for the world’s largest economy and strikes in South Africa created fuel shortages.

South Arica’s currency slid as much as 0.9 percent to 6.9193, and traded 0.7 percent weaker at 6.9075 as of 3:45 p.m. in Johannesburg. It has declined 2.9 percent versus the dollar in the past five days, its worst performance since the week ending May 13. The rand slipped 0.4 percent to 9.7441 per euro.

Emerging-market stocks and commodities fell for a second day after Federal Reserve Chairman Ben S. Bernanke told lawmakers in Washington the Fed won’t immediately resume buying bonds and Standard & Poor’s became the second firm this week to say it may cut the U.S.’s top credit rating. European stocks sank amid speculation stress tests on banks may show they don’t have enough capital to weather the fiscal crisis.

“The uncertainty surrounding the debt crises in Europe and the U.S. kept the rand on the back foot,” Standard Bank Group Ltd. analysts led by Johannesburg-based Michael Keenan wrote in a research note. “The fact that Fed Chairman Bernanke dashed expectations of further quantitative easing, while S&P became the latest rating agency to signal the possibility of a U.S. downgrade, also took a toll on risky assets.”

The one-month implied volatility of the rand versus the dollar has jumped 1.57 percentage points this week to 14.82 percent, indicating currency options traders see wider swings in South Africa’s currency in coming weeks. The premium of one- month options to sell the rand over those to buy is 3 percentage points, near the highest since Sept. 10, according to data compiled by Bloomberg.

Stress Tests

The results of the European bank stress tests will be published after the close of South African markets.

“Global markets remain very hectic and holding long-risk positions ahead of the weekend appears to be a daredevil strategy,” BNP Paribas SA analysts led by London-based Paul Mortimer-Lee wrote in a research note. “We would not advocate long positions ahead of the weekend” in emerging-market currencies, they wrote.

Pumps ran dry at as many as 270 gas stations as a strike in South Africa’s fuel industry entered its fifth day, adding to negative investor sentiment.

“It would be a mistake if we did not mention the negative fall-out that the local strike action is having on overall sentiment both within South Africa and amongst the foreign investment community,” Tradition Analytics researchers led by Johannesburg-based wrote said in a research note. This might translate into some short-term under performance of the rand versus other emerging- market currencies.”

Bonds gained for a third day. The 6.75 percent securities due 2021 rose 7 cents to 89.13 rand, cutting the yield one basis point, or 0.1 percentage point, to 8.41 percent.

To contact the reporter on this story: Robert Brand in Cape Town at rbrand9@bloomberg.net

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

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.