Emerging Market Rout Sends S.Africa Rand Reeling

Posted 15 May 2006 @ 08:18 pm EET     Print     Reprint     E-Mail     Comments

Johannesburg (Reuters) - South Africa's rand dived 3.2 percent against the dollar on Monday, spooked by a rout on emerging markets and renewed concerns over future financing of the country's widening current account deficit.

The weakness spread into the equities market, battering platinum and gold mining shares. Government bonds were not spared either, with the yield on the most-traded R153 spiking to its highest level in nearly six months.

The rand plunged 20.7 cents to 6.50 per dollar, briefly breaching that key level for the first time since November last year. "The main reason behind the fall is that we have seen a broad selloff in emerging markets," said Tania Kotsos, an emerging markets strategist at the Royal Bank of Canada.

"Because the rand is the most liquid of emerging market currencies, it tends to be hardest hit in this kind of environment." The rand was trading around 6.4375 per dollar by 1420 GMT compared to 6.2950 at close in New York on Friday. It has now erased previous gains versus the dollar so far this year.

Analysts said investors were dumping high yielding emerging market currencies with current account deficits and the rand was no exception. The yield on the most-traded R153 bond due 2010 jumped 12 basis points to 7.52 percent, its highest level since December last year, according to analysts.

The yield on the benchmark R157 bond due 2015 spiked 13 points to 7.75 percent.