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.
Gold was trading at US$1569.88 per ounce.
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 07:20 GMT‚ 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.
Bonds recover on safe haven flows
South African bonds recovered from the morning’s worst levels in midday trade on Monday on the back of safe haven flows as concerns about Spain increased again.
“We saw some profit taking in the morning‚ but as concerns rose about Spain‚ so we saw safe haven flows support our bonds‚” a local trader said.
At 11:55 the benchmark R157 bond was trading at 5.380 percent from a worst level of 5.470 percent‚ Friday’s close of 5.380 percent and 5.450 percent at Thursday’s close. The R207 was trading at 6.375 percent from a previous close of 6.325 percent and the R186 was trading at 7.265 percent from its previous close of 7.180 percent.
At the end of May the R157 closed at 6.390 percent‚ the R207 at 7.645 percent and the R186 at 8.375 percent.