Africa-Press – South-Africa. On Thursday morning, the rand hit its weakest level to date: R19.91/$.
By early afternoon, the currency recovered some of its losses to trade at R19.73/$. It was also trading at R24.60/pound and R21.12/euro.
The rand has now lost more than 26% of its value against the dollar over the past year, with the US accusation that Russia received arms in South Africa triggering a sharp crash last month.
Concerns about a diplomatic and economic backlash against South Africa also contributed to a big sell-off of local equities and bonds by foreign investors.
“May witnessed the second-highest monthly sales of South African bonds by foreign investors in a span of fifteen years. It is worth noting that the only month to surpass the sales figure recorded last month was when our credit rating was downgraded to junk status in March 2020,” said Schalk Louw, portfolio manager and strategist at PSG Wealth Old Oak.
The JSE lost 11% of its value in dollars last month. This decline was not simply an emerging market phenomenon, as the MSCI Emerging Market Index only declined by 2% over the same period, Louw noted.
Thursday’s rand weakness came as other emerging market currencies slipped slightly against the dollar – apart from Turkey’s lira which hit a record low overnight amid concerns about re-elected President Tayyip Erdogan’s economic policies.
But the dollar slipped against other major currencies as the passing of the debt agreement in the US Congress eased some nerves, says Bianca Botes, director at Citadel Global. “In addition, some Fed officials have suggested ‘skipping’ a rate hike in June. Markets are now pricing in an approximate 26% chance that the Fed will raise rates by 25bps this month, compared to a 67% chance just a day ago. ”
The rand reached new record lows earlier this week, after South Africa’s decision to provide diplomatic immunity to Russian delegates (potentially including President Vladimir Putin) at the BRICS summit in August weighed on the currency. The SA Reserve Bank’s warning about the potential threat of sanctions also hit the market.
The rand weakness will add to hot inflation in South Africa, as the country imports most of its fuel, and key crops like maize and wheat are priced according to import and export parity (in dollars).
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