The rand plummeted more than 1.5% against the dollar in afternoon trade to as low as 6.8211, as the sovereign debt crisis in Europe sparked a bout of risk aversion.
|||The rand plummeted more than 1.5% against the dollar in afternoon trade on Monday to as low as 6.8211, as the sovereign debt crisis in Europe sparked a bout of risk aversion.
“This is a result of global recovery concerns associated with the weak US non-farm payrolls data that came out on Friday as well as weak data out of China, plus there is renewed sovereign debt concerns around Italy in Europe,” Standard Bank forex analyst Michael Keenan said.
“This also shows how closely the rand is correlated to risk appetite and how it is traded as a barometer for risk,” he added.
At 15:41 local time, the rand was off its worst levels of the day, and was bid at 6.7894 to the dollar from its previous close of 6.7168. It was bid at 9.5491 to the euro from 9.5616 before, and at 10.7894 against sterling from 10.7598 previously.
The euro was at US$1.4056 from US$1.4200.
Meanwhile, Dow Jones Newswires reported that fears the euro-zone debt crisis was spiralling out of control had put the euro under renewed pressure on Monday as senior euro-zone officials prepared to meet to try to stem contagion to Italy and advance a new aid deal for Greece.
The euro hit a record low against the Swiss franc and for the first time since June 16 the single currency fell below US$1.41 against the dollar as contagion fears ratcheted up a notch because of concerns over the health of Italy's banking system ahead of bank stress test results due on Friday.
“Euro-zone politicians have clearly failed to draw a line under this crisis at every point. Now the stakes are Italy, this is potentially a catastrophe,” said Jane Foley, a currency strategist at Rabobank in London.
Worries of deepening contagion sent Italian and Spanish bonds yields to their widest levels since the inception of the common currency, while default insurance costs for Italy, Portugal, Ireland and Greece all hit record highs.
“Markets' concern that the debt crisis is spreading to Italy is clearly growing,” said Adam Cole, global head of foreign-exchange strategy at RBC Capital Markets in London.
Adding to the negative tone on Monday was a Financial Times report suggesting that euro-zone officials may allow Athens to default on some of its bonds.
Against this backdrop, the 17-country currency fell against the dollar, pound and safe-haven Swiss franc and yen.
“Inevitably it's a day of Swiss franc strength,” said Rabobank's Foley. She added that the dollar didn't look “that appetizing either” after US President Barack Obama and congressional leaders failed to reach a deal at the weekend to cut the deficit and lift the nation's borrowing limit.
With Monday's economic data agenda relatively light, the bulk of attention would turn to the European meetings taking place in Brussels. But also on the weekly agenda is US Federal Reserve chief Ben Bernanke's testimony due on July 13, a raft of US economic data, and the start of the second-quarter US corporate earnings season when Alcoa reports on Monday after the closing bell on Wall Street. - I-Net Bridge
Source: http://www.iol.co.za/rand-plummets-vs-dollar-on-euro-worries-1.1097081
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