The rand declined against the dollar, heading for its biggest fall in a month, after Fitch Ratings reduced its outlook on South Africa’s BBB+ credit rating to negative from stable.
The currency fell as much as 1.5 percent, the most since Dec. 14 on a closing basis, and traded 1.3 percent lower at 8.1549 per dollar by 4:43 p.m. in Johannesburg. Earlier the rand traded 0.3 percent stronger.
The negative outlook “reflects the limited progress on several long-standing structural issues” that have affected South Africa’s economy, Fitch said in a statement. The ratings company cited a failure to create enough jobs for the labor force and the subsequent need to redistribute public finances.
“It was a surprise; changing the outlook is not great news so lots of stop losses are being triggered and there are potentially more losses ahead,” Ion de Vleeschauwer, chief dealer at Johannesburg-based Bidvest Bank Ltd., which runs South Africa’s largest chain of moneychangers, said by phone.
Earlier, Dow Jones Newswires reported several European nations may face “imminent” downgrades to their credit ratings. The downgrades may happen as soon as today, according to the report.
“Rumors that S&P might downgrade more countries in Europe is not helping the euro,” Vleeschauwer said. ‘If these rumors are true, we are headed for even higher levels and 8.25 rand to the dollar is on the cards.”
The euro, the currency of South Africa’s biggest regional trading partner, fell 1.1 percent versus the dollar to 1.2693, its biggest decline in more than a week. The rand retreated 0.6 percent to 10.3919 per euro.
South Africa’s 13.5 percent bonds due 2015 declined for the first time in four days, driving the yield up 4.6 basis points, or 0.046 percentage point, to 6.785 percent.