The rand weakened against the dollar, snapping a six-day rally, after Standard & Poor’s said it may cut the credit ratings of 15 euro-area nations, damping demand for riskier, emerging-market assets.
The rand retreated as much as 1.6 percent, and traded 0.6 percent weaker at 8.0548 per dollar as of 3:06 p.m. in Johannesburg, paring a 6.7 percent gain in the previous six days.
“S&P’s decision to put 15 of 17 euro zone countries on a negative ratings watch has interrupted the bullish rand trend,” John Cairns, a currency strategist at Rand Merchant Bank in Johannesburg, said in e-mailed comments. The rand may extend its decline “as the ratings news gets absorbed in the market,” he added.
Emerging-market stocks (MXEF) tumbled for the first day in seven and commodity prices fell after S&P put countries including Germany and France on review for possible downgrade, saying a decision may be made following a summit of European Union leaders on Dec. 9. South Africa’s benchmark stock index declined, led by commodity exporters including Anglo American Plc.
German Chancellor Angela Merkel and French President Nicolas Sarkozy said in a joint statement yesterday, saying a closer fiscal union in the EU will “strengthen coordination of budget and economic policy,” and promote stability and growth. S&P’s warning will add impetus to efforts to resolve the debt crisis, German Finance Minister Wolfgang Schaeuble said.
South African bonds weakened, driving yields higher for the first time in seven days. The yield on 13.5 percent notes due 2015 rose three basis points, or 0.03 percentage point, to 6.71 percent.
“The correlation between local bond yields and the dollar- rand has been strongly positive in recent weeks,” Quinten Bertenshaw, a Johannesburg-based analyst at Tradition Analytics, and colleagues wrote in an e-mail. “Local bonds yields will also be likely to tick higher in the coming week into the European summit.”
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