The rand fell to a three-week low and yields rose for the first day in three as concern increased that Europe’s debt crisis is deepening and last week’s interest rate cut damped foreign investor demand for South Africa assets.
The country’s currency retreated as much as 2.3 percent to 8.4776 per dollar, the weakest since June 27. It traded 2.2 percent down at 8.4678 by 3:44 p.m. in Johannesburg. Yields on the nation’s 6.75 percent bonds due 2021 climbed eight basis points, or 0.08 percentage point, to 6.58 percent.
A surge in Spanish bond yields dimmed the outlook for a bill sale tomorrow before Greece’s creditors meet this week amid doubts the country will meet bailout commitments. German Vice Chancellor Philipp Roesler said he’s skeptical European leaders will be able to rescue Greece. The South African Reserve Bank’s Monetary Policy Committee lowered its repurchase rate on July 19 to 5 percent from 5.5 percent, the first cut since 2010.
“Spain seems to be driving markets lower across the board, and that’s going to keep putting pressure on emerging-market currencies,” Ion de Vleeschauwer, the Johannesburg-based chief dealer at Bidvest Bank, South Africa’s biggest chain of money-changers, said by phone. “The rate cut hasn’t helped the rand, and some market participants are discounting further rate cuts.”
Lower interest rates reduce relative returns on the rand for investors who borrow in dollars to buy high-yielding currencies, known as the carry trade.
“If you’re a foreign investor, you’re looking at the diminished carry and you’re saying, should I hold on to my rand assets or should I get out while I can,” De Vleeschauwer said, “We’re going to have to start getting used to weaker levels on the rand.”
Emerging-market stocks fell the most since November and Standard & Poor’s GSCI index of commodities retreated as much as 2.9 percent as the prices of metals including copper and nickel decline. Metals and other commodities accounted for 45 percent of South Africa’s exports last year, government data show.
South Africa’s benchmark stock index dropped the most in three weeks, dragged down by commodity exporters including Anglo American Plc and BHP Billiton Ltd. The euro zone buys 25 percent of South Africa’s exports, according to government data.
“Short-term pressures have switched towards rand weakness as concerns over Spain resume,” John Cairns and Josina Solomons, currency strategists at Rand Merchant Bank in Johannesburg, said in e-mailed comments. “Things could get worse.”
South Africa’s $1 billion of 5.875 percent bonds due 2022 rose eight basis points to 3.24 percent. The cost of protecting South African dollar-denominated sovereign debt against non-payment for five years using credit-default swaps increased 13 basis points to 155, up from this year’s low of 134 on July 18, according to data compiled by Bloomberg.