Rand Set for Biggest Drop in 3 Weeks as U.S. Spurs Risk Selloff

The rand declined, heading for its biggest slump in three weeks, as concern that U.S. budget negotiations will fail reduced appetite for riskier assets.

South Africa’s currency depreciated 1.1 percent to 8.5668 per dollar by 3:44 p.m. in Johannesburg, paring its gain this month to 4 percent. The rand has lost 6 percent this year. Yields on the government’s 6.75 percent bonds due March 2021 fell two basis points, or 0.02 percentage point, to 6.35 percent, a record low.

The MSCI Emerging Markets Index (MXEF) sank 1.1 percent, the most since Nov. 8, after U.S. House Republican leaders canceled a vote that would permit higher taxes. U.S. lawmakers are seeking to avert more than $600 billion in tax increases and spending cuts set to start on Jan. 1. The 21 nations in the MSCI gauge send about 17 percent of their exports to the U.S. on average, World Trade Organization data show.

“Markets at least in the short term are likely to respond negatively to this news,” Chris Becker, a Johannesburg-based analyst at Tradition Analytics, and colleagues wrote in e-mailed comments. “Nothing in the way of domestic data will leave the bulk of the focus with offshore developments, most likely related to the fiscal cliff.”

Standard & Poor’s GSCI Index of commodities dropped as much as 0.7 percent, a second day of losses. Raw materials accounted for 45 percent of South Africa’s exports last year, according to government data.

To contact the reporter on this story: Stephen Gunnion in Johannesburg at sgunnion@bloomberg.net

To contact the editor responsible for this story: Vernon Wessels at vwessels@bloomberg.net

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