Rand suffers as Greek contagion fuels risky asset sell-off

‘Any rise in global risk aversion translates into rand weakness’.

South Africa’s rand weakened on Monday as the threat of a debt default by Greece sapped market appetite for risky assets, dragging the local currency to a one month low to the dollar.

By 15:45 the rand had recovered some ground, weakening 0.7% to 12.2875 per dollar, having earlier slipped more than one percent to a four-week trough as the Greek crisis deepened, souring sentiment toward emerging markets.

Currencies of the so-called “fragile five” economies: Brazil, Indonesia, India, Turkey as well as South Africa, all suffered versus the greenback on the day, with the rouble, the lira and the rand the hardest hit.

“Any rise in global risk aversion translates into rand weakness,” Annabel Bishop, chief economist at Investec, said in a note.

Forgiving Greece’s 1.6 billion euros ($2 billion) debt, due by Wednesday, risked a “moral hazard”, Bishop said, as other large debtor countries might be encouraged to renege on austerity measures.

Yields on government bonds rose sharply before pulling back in late trade, with the paper due in 2026 adding only 0.5 basis to 8.355%, having climbed as high as 8.447%.

“Markets will keep reacting to the possibility of contagion from Greece into the rest of the world. And contagion can have massive implications for South Africa,” said Marten Banninga, head of bonds at World Wide capital Securities.

Locally, South Africa’s central bank publishes credit and money supply figures early on Tuesday followed by trade balance data later in the session.

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