Rand Worst Performer as Risk Demand Recedes After Nuclear Test

The rand led declines against the dollar in emerging-market currencies after North Korea tested a nuclear weapon in defiance of the United Nations, prompting investors to shun riskier assets.

South Africa’s currency slipped as much as 0.9 percent to 8.9908 per dollar, the weakest intraday level since Feb. 1. It traded 0.7 percent down at 8.9703 as of 3:23 p.m. in Johannesburg. Yields on benchmark 10.5 percent bonds due December 2026 climbed two basis points, or 0.02 percentage point, to 7.33 percent.

The dollar strengthened while most developing-nation stocks retreated after North Korea held a third nuclear test today, roiling markets. The rand also weakened before the release of data tomorrow that may show retail sales growth in South Africa slowed, adding to evidence Africa’s biggest economy is stalling.

“There is a risk-off trade materialising globally as a result of geo-political tensions,” Mohammed Nalla, head of strategic research at Nedbank Group Ltd. in Johannesburg, said by phone. The rand extended its decline as it weakened beyond a key resistance level at 8.95 per dollar, he said.

The underground test was successful, the official Korean Central News Agency said in a statement. South Korea’s Defense Ministry estimated the yield at 6 to 7 kilotons. The atomic bomb dropped on Hiroshima had an estimated yield of 15 kilotons.

“A resurgent dollar followed geopolitical tensions with North Korea testing nuclear weapons,” Quinten Bertenshaw, an analyst at ETM Analytics in Johannesburg, said in e-mailed comments. “This has immediately been reflected in the rand as a rotation to safety ensued.”

The rand is the second-worst performing major currency after the yen as consumer spending is coming under pressure amid mounting job losses and increased food and fuel costs.

Retail sales growth slowed to 1.6 percent in the year through December, from 3.4 percent the month before, according to the median estimate of 12 economists in a Bloomberg survey.

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

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

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