The major currency of South Africa, Rand has declined for the 2nd day on a row over the concern of investors that the US budget deal is not enough. After the budget deal was finalized, many were relieved thinking that the fiscal cliff would be avoided. However, now fresh concerns are doing the rounds that the US lawmakers will not agree to increase the debt ceiling for the biggest economy of the world. Hence, the demand for the emerging market assets has sapped.
Rand experienced a decline of 1.1% if compared to the greenback. It is now priced at 8.57567 per USD. Incidentally, only on 2nd January, Rand jumped to the highest value against Dollar in last 3 months. It was priced at 8.42 per USD. On the other hand, the yield on benchmark 10.5% bonds which are due by December, 2026 increased by 7 basis points and is currently at 7.31%.
Incidentally, this is the first time in 6 days, when the bonds have been able to see an increase in their values. The gains were mostly influenced by the US budget deal which averted the spending cuts and automatic tax increases. The officials have now turned to the $16.4 trillion debt limit of the country and how to deal with this problem. When it comes to today, USD has advanced against most of its major counterparts. According to the US Congressional Budget Office, a tax increase is almost mandatory. The same has to be implemented by mid-February, 2013 so that the debt limit problem can be solved.
According to George Clynos, the Analyst for ETM Analytics, the US fiscal challenge is yet to be resolved completely and it will continue to bug. George added that the risk assets, in near future, will start to again price in the uncertainty of the markets.
Some traders believe that the South African market has not been able to get over from the holidays entirely and starting next week, when most of the investors will be back, Rand may experience further highs. From next week, it is expected that Rand will get some sort of direction.
Coming to US markets, the Standard & Poor’s 500 Index declined for the 1st time in 3 days. The drop was experienced mainly because of the prices of different metals such as nickel and copper plummeted.