The rand weakened against the dollar, snapping a four-day advance, after talks on raising the U.S. debt limit failed, boosting the chance of a default and damping investor demand for riskier, emerging-market assets.
The rand depreciated as much as 1.1 percent, the most in a week, to 6.8475 per dollar, and traded 0.2 percent down at 6.7863 as of 4 p.m. in Johannesburg. The currency of Africa’s biggest economy dropped 0.2 percent to 9.7378 per euro.
Gold rose to a record as Republican lawmakers prepared to force action on a shorter-term extension of the debt ceiling than President Barack Obama has requested, spurring demand for the metal as an investment haven and prompting investors to shed riskier assets. The rand pared its decline as exporters repatriated foreign earnings.
“The nightmare scenario of a self-generated U.S. bankruptcy is not completely out of the picture,” John Cairns and Nema Ramkhelawan-Bhana, currency strategists at Rand Merchant Bank in Johannesburg, wrote in a research note. “The nervousness is bad for all risky assets, including the rand. Volatility will increase as long as a deal is not forthcoming.”
The one-month implied volatility of the rand versus the dollar climbed for the first time in a week, adding 52 basis points, or 0.52 percentage point, to 15.25 percent, indicating currency options traders see wider price swings in coming weeks.
Strikes by petroleum, chemical, engineering and packaging workers and the government’s decision to appeal a ruling to allow Wal-Mart Stores Inc. to buy a controlling stake in Massmart Holdings Ltd. added to negative investor sentiment, said Brigid Taylor, head of institutional flow sales at Nedbank Capital.
“There are a lot of headwinds facing us in terms of attracting long-term foreign inflows,” Taylor said by phone from Johannesburg. “The Wal-Mart issue in particular is a big negative for people who want to get involved in the South African economy.”
Exporters took advantage of the rand’s decline to convert their dollar earnings to local currency, paring the rand’s depreciation, Taylor said.
Bonds declined for the first day in five, lifting 10-year yields from the lowest levels in six weeks. The 6.75 percent securities due 2021 slipped 11 cents to 89.81 rand, driving the yield two basis points higher to 8.30 percent.