The rand weakened for the first time in five days as metal prices retreated on concern that Europe’s sovereign debt crisis may slow global economic growth and after Chinese house prices slid for a fourth month.
South Africa’s currency depreciated 1.2 percent to 8.1233 per dollar as of 4:11 p.m. in Johannesburg. Against the euro, it fell 0.3 percent to 10.5123, a second day of losses.
The European Central Bank reported overnight deposits from financial institutions rose to an all-time high and Luxembourg Prime Minister Jean-Claude Juncker said the European Union is facing a recession of unknown scope. Hungary may fail to obtain an International Monetary Fund financing agreement in the first half of this year, Citigroup Inc. said in an e-mailed report.
“We are not out of the woods yet with the euro-zone crisis,” Ion de Vleeschauwer, chief dealer at Johannesburg-based Bidvest Bank Ltd., which runs South Africa’s largest chain of moneychangers, said by phone. The rand will struggle as market participants “keep a close eye on any developments in euro land,” he added.
China’s home prices fell for a fourth month in December and Premier Wen Jiabao said business conditions may be “relatively difficult” this quarter. The outlook for China’s copper demand, which typically peaks at the end of February through May, is “uncertain” as Europe’s debt crisis threatens to curb exports, Jiabao said.
Copper for March delivery declined for the first time in four days, retreating as much as 1.5 percent to $3.475 a pound in New York. Commodities make up 50 percent to 60 percent of South Africa’s total exports, according to Rand Merchant Bank.
South Africa’s economy “may be highly vulnerable to contagion risks, should the global market worsen”, Guillaume Salomon, a London-based strategist at Societe Generale SA, said in an e-mailed report. SocGen recommends paying fixed rate for five-year interest-rate swaps, betting the Reserve Bank will raise its benchmark interest rate as the rand weakens.
South Africa’s 6.75 percent bonds due 2021 slipped for the first time in five trading days, driving the yield up 14 basis points, or 0.14 percentage point, to 8.08 percent.