Rand erases gains as fear of prolonged crisis looms
July 5, 2009
By Garth Theunissen
The rand weakened for a second day on Friday, erasing the week's gain, as concern deepened that the global recession may be prolonged, eroding demand for local exports.
The rand fell 0.9 percent to R7.9137 to the dollar by 4.14pm on Friday, the worst performer among 16 major currencies, leaving it down for the week.
The rand rallied 20 percent this year, the biggest gain among the major currencies, on speculation the worst of the global economic slump was over. A US government report on Thursday showed that the unemployment rate in the US climbed to the highest since 1983, damping growth prospects for commodity-producing economies.
"The rand is losing out because it's one of the currencies that has rallied the most on expectations of a global economic recovery," said Tom Levinson, a currency strategist at ING Bank. "The disappointing economic data we saw yesterday (Thursday), especially the US employment report, means that currencies that have gained the most are falling off now because of the realisation that the path to economic recovery is going to be a long, slow grind."
The rand fell along with the Hungarian forint, Malaysian ringgit and Russian ruble. Last month US employers cut more jobs than forecast and the jobless rate rose to 9.5 percent, threatening to erode the consumer spending essential to an economic recovery. Unemployment in the euro area rose to a 10-year high of 9.5 percent in May, the EU statistics office said on Thursday.
Simultaneous recessions in the US, Japan and euro zone countries, which together account for 60 percent of South Africa's exports, have cut demand for the nation's products.
Exports make up about 28 percent of gross domestic product, figures from the SA Revenue Service show.
South African government bonds, which were little changed on Friday, declined last week on speculation the government would be forced to sell more debt as the global slowdown hurts revenue.
The yield on the benchmark 13.5 percent security due September 2015 climbed 31 basis points this week to 8.77 percent while its price, which moves inversely to the yield, fell R1.72 to R122.18. The yield on the 13 percent note maturing in August next year rose 15 basis points to 7.37 percent. Its price dropped 28c to R106.02.
Finance Minister Pravin Gordhan said on Thursday that the government might fall short of its tax revenue target by as much as R60 billion this year, indicating it might need to issue more debt to finance its budget deficit.
The revenue shortfall may widen the 3.8 percent deficit announced in the country's February budget. - Bloomberg
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