JOHANNESBURG — South Africa’s rand and stocks fell to multi-month lows on Monday as investors dumping risk hammered everything from resource firms to banks after the downgrade of the US credit rating prompted a sell-off.
The rand broke through key support to trade at its weakest level in five months, while stocks fell three percent to their lowest in 11 months.Government bonds reversed some losses in a very volatile session as the local debt market was bought and sold in reaction to global sentiment and rand moves.
The central bank and Treasury said in the session they saw no reason to make significant changes to the composition of foreign currency reserves, and forecasts for economic growth were unchanged by the global developments.
Other central banks such as Nigeria and Mauritius announced plans to diversify their own holdings away from an over reliance on the dollar.
South African markets were to be closed for a national holiday today. The rand lost 2,6% to the dollar to 7.1000 during the session, piercing through support at the psychologically important 7,0/dollar mark. It closed at 6,9175 in New York on Friday.
“We’ve seeing a lot of uncertainty in these markets around what’s happened over the weekend with the downgrade of the US,” said Brigid Taylor, currency trader at Nedbank.
“That being said there’s been a lot of risk taken off book, with offshore players remaining relatively risk averse, which means that the rand has become less of a serious appetite currency,” she added.
By 1612GMT the rand was the biggest loser among a basket of emerging market currencies monitored by Reuters.
“We’re so correlated to equity markets. Its really just negative sentiment around wealth destruction and people concerned about growth which has to capitulate into weaker commodity prices,” said Garth Klintworth, head of fixed income commodities and currencies at Absa Capital.
Government bonds had a very volatile session, jumping 10 to 15 basis points on the benchmarks. Yields opened higher, but had come back somewhat by the end of trade to close little changed from Friday. — Reuters