The monetary unit of South Africa lost value on Friday to the world's reserve currency in response to a ratings service dropping the outlook of the African nation from stable to negative, according to
The nation hosts the biggest economy on the African continent and its credit rating presently stands at BBB+. The value of the South African rand dropped as much as 1.5 percent, representing the sharpest losses since December 14. At one point later on Friday afternoon in South Africa, the rand was trading 1.3 percent lower.
Fitch ratings pointed to minimal progress made on numerous structural issues that directly impact the life and times of the nation's economic system. Two examples are the country's inability to create jobs as well as the necessity of redistributing the public finances.
"It was a surprise; changing the outlook is not great news so lots of stop losses are being triggered and there are potentially more losses ahead," chief dealer Ion de Vleeschauwer with Bidvest Bank in Johannesburg told the news source. Bidvest operates the country's biggest moneychanger chain.
Also in danger of credit rating downgrades are the economies of several European nations, which would harm the shared currency of the European Union. Late last year, credit rating services like Standard & Poor's said they are taking a close look at the credit ratings of euro zone nations and earlier this month they said they would decide what, if any, rate slashing would occur by the end of the month of January.
The rand is sensitive to the life and times of the 17-nation single currency since the region is the biggest trade partner to South Africa. The euro immediately dropped 1.1 percent to the U.S. dollar, representing its top losses in at least one week.
"Rumors that S&P might downgrade more countries in Europe is not helping the euro," Vleeschauwer told the news source. "If these rumors are true, we are headed for even higher levels and 8.25 rand to the dollar is on the cards."
investors were quick to abandon the South African rand once Fitch Ratings issued the downgrade. As a consequence, the value of the rand immediately fell 2 percent to the U.S. dollar.
That downgrade and the fallout of reports regarding the credit slashes to the euro zone economies proved to dissuade interest in the rand. The downgrade is likely to prompt increased charges from investors upon South Africa to borrow.
Other areas where the credit rating slash harmed South Africa was with government bonds, Reuters reports. Yields on bonds issued for maturity in 2015 gained 6.5 basis points to 6.795 percent. The yield on bonds set for maturity in 2026 increased 3.5 basis points to 8.565 percent.
Dow Jones Newswires reports
the news about Standard & Poor's imminent slashes to the credit rating of euro zone nations impacted the performances of risk assets.
France is one euro zone nation believed to be on the brink of a downgrade but the news about other economies facing the scepter wielded by the credit rating services was chilling sentiment.
The threats to the economies' ratings serve as a stark reminder as to the grave dangers that the region is facing with the sovereign debt crisis as well as how damaging a possible slowdown would be to economies of emerging markets.
Emerging market strategist Benoit Anne with Societe Generale told Dow Jones Newswires that the strong performance of the currencies of emerging market nations was too good to last very long.
"This profit taking is now accentuated by the downgrade news leading to weakness in emerging market currencies," Anne told the news source.