Parliament - The rand plunged the most in five weeks against the dollar and bond yields soared after Finance Minister Pravin Gordhan failed to convince traders that the nation can avert a credit downgrade to junk.
The South African currency dropped as much as 2.4 percent, the biggest intraday slump since January 15, and traded 2.2 percent weaker at 15.5669 per dollar by 2.41pm in Johannesburg. Yields on benchmark government rand bonds due December 2026 climbed 13 basis points to 9.29 percent, the highest on a closing basis since February 4.
In his budget speech on Wednesday, Gordhan stuck to a pledge to bring down the budget deficit, targeting civil-servant jobs and increasing wealth taxes.
The speech didn’t include enough details about how the government intended to narrow the fiscal shortfall, according to Warrick Butler, the Johannesburg-based head of emerging-market spot trading at Standard Bank Group. A slump in currencies of other commodity-producing currencies including Russia and Norway also weighed on the rand, he said.
“Lots of stories, no follow-through,” Butler said via email. “A lot of what he proposes is based on future tax income. I think the market wanted to hear sale of state-owned enterprises, increased tax, and so on. Also don’t ignore the bout of risk aversion hitting other markets. The timing of the speech is in correlation with the offshore sell-off.”
Moody’s Investors Service on Wednesday cut Brazil’s credit rating to junk, adding to investor concerns about emerging-market currencies. Nineteen out of 24 developing-nation currencies fell against the dollar, according to data compiled by Bloomberg.
Bloomberg