Rand Declines for Fourth Day as ECB Fails to Reassure Investors
The rand weakened for a fourth day, reversing earlier gains, after European Central Bank President Mario Draghi failed to reassure investors he was ready to take immediate steps to support the region’s debt crisis.
South Africa’s currency retreated 0.5 percent to 8.3876 per dollar as of 3:42 p.m. in Johannesburg after strengthening as much as 1.2 percent. Yields on 6.75 percent bonds due 2021 climbed two basis points to 6.68 percent.
Draghi, who pledged last week to do “whatever it takes” to preserve the euro, said policy makers may undertake open market operations and that high yields were unacceptable, after the ECB kept its main rate at 0.75 percent. He didn’t announce any immediate steps. The Federal Reserve signaled its readiness to support the U.S. economy even as it refrained from adding to bond purchases yesterday.
“What was the market expecting? More, obviously,” Ian Cruickshanks, head of treasury strategic research at Johannesburg-based Nedbank Group Ltd., said by phone. “The market was building itself up for a let-down.”
Emerging-market stocks extended declines and commodity prices fell, driving the Standard & Poor’s GSCI Index to the lowest level in almost three weeks. South Africa’s benchmark stock index reversed gains as the prices of commodity exporters including Anglo American Plc tumbled.
Draghi signaled the bank will join forces with governments to buy sovereign bonds in sufficient quantities to remove all doubts about the future of the euro. Any bond purchases will be conducted in a way to soothe investors’ concerns about seniority, Draghi said at a press conference in Frankfurt today.
Metals and other raw materials accounted for 45 percent of South Africa’s exports in 2011, according to government data.
The Federal Open Market Committee “will provide additional accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability,” it said in a statement at the end of a two-day meeting in Washington.
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