Rand weaker on risk aversion

Graphic: renjith krishnan

Graphic: renjith krishnan

Published Jul 23, 2012

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Risk aversion weighed on the rand in midday trade as the local currency continued to lose ground on heightened depressed global sentiment.

Spain debt concerns increased due to renewed worries surrounding the growth prospects of the country‚ as further aid is now expected‚ according to analysts. EU Finance Ministers approved EUR100bn financial aid for Spanish banks on Friday. However‚ the mood quickly soured when Spanish authorities announced that the country was likely to remain in recession until 2014.

At 11:46 the rand was bid at R8.3918 to the dollar from its previous close of R8.2682. It was bid at R10.1546 to the euro from its previous close of R10.0260 and at R13.0275 against sterling from R12.9076 before.

The euro was bid at US$1.2108 from its previous close of $1.2121.

Commenting on the rand Standard Bank analysts said: “This week is a fairly busy one in terms of US data‚ among which key Q2:12 GDP growth numbers appear likely to confirm a material slowdown relative to the prior quarter. Any disappointment in US activity data could paradoxically lift risk appetite if it stokes optimism around the prospect of QE3. However‚ to the extent that the news out of the eurozone appears likely to be even worse (watch for a bigger contraction in PMI than expected)‚ we suspect it could be a tough week for the euro. We stick with our call for the euro to weaken to US$1.15. in three months.”

Mohammed Nalla‚ Strategic Analyst at Nedbank Capital said: “We have seen the rand reach 8.40 mainly on the back of risk aversion. The Spanish concerns are weighing at the moment.”

Meanwhile Dow Jones newswires reported that the cost of insuring Spain's debt against default hit a fresh record high on Monday‚ with the country's borrowing costs continuing to rise from last week as concerns about the government‚ its regions and banks continued to rattle investors.

At around 09:20 SA time‚ Spanish five-year credit default swaps had surged 35 basis points wider to a record 638 basis points‚ according to data provider Markit.

This stands in stark contrast to levels below 500 basis points seen early this month‚ and means it costs an average of $638‚000 a year to insure $10 million of debt issued by the country. - I-Net Bridge

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