South Africa Rand Leads Currency Declines Versus Dollar

The rand weakened against the dollar for a third day on concern slowing global growth will dim prospects for South African exports. Bonds declined, driving three-year yields to a six-week high.

South Africa’s currency retreated as much as 0.9 percent to 7.6192 per dollar, the weakest since Feb. 27. It traded at 7.6157 per dollar as of 3:20 p.m. in Johannesburg, bringing its decline in the past three days to 2.3 percent. The yield on the nation’s 65 billion rand ($7.6 billion) of 13.6 percent bonds due 2015 rose 1.5 basis points to 6.71 percent, the highest since Jan. 20.

Europe’s gross domestic product shrank 0.3 percent from the third quarter, the region’s statistics office said today, confirming an initial estimate published on Feb. 15. Data showed yesterday that U.S. factory orders decreased for the first time in three months and euro-area services output shrank more than forecast in February, while China lowered its growth target. The U.S. euro region and China buy 44 percent of South Africa’s exports, according to government data.

“The downturn in growth expectations comes as a hit to the rand,” John Cairns and Josina Solomons, currency strategists at Rand Merchant Bank in Johannesburg, wrote in an e-mailed report. “Ultimately the rand is a high-beta play on growth.”

South Africa’s benchmark stock index fell for a third day, reaching a five-week low, as shares in mining companies including BHP Billiton Ltd. and Anglo American Plc slumped. The Standard & Poor’s GSCI Index of commodities also retreated for a third day.

‘Growth Concerns’

Metals and other commodities account for 65 percent of South Africa’s export earnings, according to government data for 2011. The nation has the world’s largest mineral reserves, according to Citigroup Inc.

“Growth concerns are likely to remain very much the focus,” Nomvuyo Guma, a currency strategist at Standard Bank Group Ltd. in Johannesburg, said in e-mailed comments. “This implies the potential for further weakness in the rand.”

The rand also retreated as Greece struggles to complete a bond exchange with private investors by March 8 in order to receive a 130 billion-euro bailout. Greece expects bondholders to accept the offer and is ready to force them to participate if necessary, Finance Minister Evangelos Venizelos said in a Bloomberg Television interview in Athens yesterday. The euro, which pays for 22 percent of South Africa’s exports, dropped to a two-week low against the dollar.

“The risk-off sentiment remains in play,” George Glynos, an economist at Johannesburg-based ETM Analytics, wrote in e-mailed comments today. “There are a few risk events up ahead that should keep dollar bids reasonable in the very short term. These include on-going negotiation in euro land.”

Bond Yields

The yield on South Africa’s $1.5 billion of 4.665 percent bonds due 2024 rose seven basis points, or 0.07 percentage point, to 4.21 percent. The extra yield investors demand to hold the debt rather than U.S. Treasuries widened 10 basis points to 223 basis points.

“Bonds probably took some direction from the weaker rand,” Jeremy Fox, a fixed-income trader at Rand Merchant Bank in Johannesburg, said in an e-mailed research note. “Recent price action in the bond market has not been good, suggesting that we should probably trade weaker over the next few days.”

Credit default swaps for South Africa’s foreign-currency sovereign bonds rose four basis points to 158 basis points yesterday, the highest since Feb. 29, according to CMA.

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