The rand pared some losses late in the afternoon on Wednesday after plummeting to its weakest level in four months for the second day in a row, with stocks on the JSE also plunging to a 11-month low on the global sell-off of South African assets.
The domestic currency fell to R19.41 to the US dollar during early morning trade, its lowest since May when South Africa had a diplomatic fallout with the US over the docking of the sanctioned Russian vessel Lady R in Simon’s Town.
However, the rand made some gains during the day, strengthening to R19.18/$1 in the afternoon before closing 0.4% lower at R19.39/$1 by 5pm.
The rand has been pressured by a stronger dollar and surging US Treasury yields, which has been driving investors to the greenback, amid expectations that monetary policy will need to stay restrictive for “some time” to bring inflation back down to the 2% target in the US.
TreasuryONE senior dealer Andre Botha, however, said the rand had not depreciated as much against other major currencies as against the US dollar.
Botha said the reason why the US dollar was appreciating as fast as it was currently was due to the US economy standing head and shoulders above the rest in terms of data and resilience to a higher interest rate environment.
He said that while the rest of the world was battling low growth with higher inflation, the US was seen as the country that had tackled it the best.
“This makes it easier for the market players to go into the US market as the rest of the world looks a little bleak,” Botha said.
“Adding to the bleak nature of the picture is that demand is dwindling out of China which has an effect on emerging markets as well as metal prices and depressed demand makes emerging markets not the flavour of the week.
“All this combined has led to a sell-off in emerging markets, not the rand specifically this time around, and the rand has followed the rest of emerging markets. In saying that, the rand has got challenges to stage a major recovery and the market could be on the defensive leading up to the Medium-Term Budget Policy Statement.”
Meanwhile, the JSE All Share Index fell to its lowest in nearly a year at 70 564 points as rising US Treasury yields and the prospect of a longer period of high interest rates continued to weigh on global markets.
BUSINESS REPORT