The rand headed for its worst week versus the dollar since May as weaker U.S. economic data and Europe’s debt crisis heightened the risk of a global recession, sapping demand for riskier, emerging-market assets. The rand depreciated as much as 0.6 percent to 6.9624 per dollar, the lowest since July 19. It traded 0.2 percent down at 6.9307 as of 9:33 a.m. in Johannesburg, bringing its decline this week to 3.5 percent, the biggest since the week ending May 13 and the worst weekly performance out of more than 20 emerging-market currencies monitored by Bloomberg. U.S. employment data today may add to signs U.S. growth is faltering, after reports this week on unemployment claims, manufacturing and spending pointed to a slowdown in the world’s biggest economy. Emerging-market stocks slumped for a fourth day and the Standard & Poor’s GSCI index of raw materials tumbled to its lowest since January. South Africa’s benchmark stock index fell to the weakest since September. “Risk continues to sell off in an aggressive manner as global growth fears grip markets,” BNP Paribas SA analysts led by London-based Paul Mortimer-Lee wrote in an e-mailed note. “The rand is likely to continue to edge” weaker, they wrote. The rand’s three-month implied volatility versus the dollar soared 1.025 percentage points today to 16.69 percent, the highest in more than a year, indicating that options traders expect swings in the currency to widen in coming weeks. Options traders are more bearish on the rand than at any other time this year, with the extra price of three-month contracts to sell the rand rather than buy it rising as much as 74 basis points, or 0.74 percentage point, to 4.24 percentage points today, according to so-called risk-reversal rates compiled by Bloomberg. Reserves Data The rand extended its decline after the Pretoria-based Reserve Bank reported today that its foreign-currency reserves declined by $372 million in July to $40.8 billion. Gross foreign currency and gold reserves rose by $68 million to $50.1 billion, the central bank said on its website. “It was once again not a strong reserve build month for the Reserve Bank, suggesting the central bank remains cautious of intervening to weaken the Rand,” Tradition Analytics researchers led by Johannesburg-based Quinten Bertenshaw wrote in a research note. “They have most likely taken note of the problems now plaguing Turkey after their central bank’s aggressive intervention to weaken the currency in recent months.” The rand may extend its drop to 7.02 per dollar, a so- called resistance level for the U.S. currency where traders have clustered order to buy rand, the BNP analysts wrote. Bonds gained for a sixth day, driving 10-year yields to the lowest in nine months, on speculation slowing economic growth will help tame inflation in Africa’s largest economy. Breakeven Rate Ten-year breakeven rates, or the difference between the yields on inflation-linked bonds and those of similar-maturity fixed-interest bonds, dropped 10 basis points today to 5.42 percent, the lowest since January. Investors are reducing bets on an interest-rate increase in coming months, with forward-rate agreements due in February dropping to 5.655 percent today, the weakest since Jan. 20. “Bond yields just continue to migrate lower across the curve,” Tradition wrote. “Interest-rate expectations are moderating sharply as the global growth outlook deteriorates.” The 6.75 percent securities due 2021 gained 40 cents to 92.66 rand, driving the yield down six basis points to 7.85 percent, the lowest since Nov. 8. The yield has plunged 43 basis points this week. Foreign investors purchased a net 1.78 billion rand ($256.5 million) of South African bonds yesterday, according to the JSE Ltd., which runs the nation’s stock and bond exchanges. Foreign investors have bought 47.3 billion rand of South African debt this year, attracted by 10-year yields as much as 5.51 percentage points more than U.S. Treasuries. “Foreign appetite for yield in the uncertain global market and coupled with the carnage on the JSE probably implies potential further gains on bond yields,” Rand Merchant Bank analysts led by Theuns de Wet wrote in a research note. To contact the reporter on this story: Robert Brand in Cape Town at rbrand9@bloomberg.net To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net

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