The rand continued taking a hammering in the global financial markets yesterday as it remained at a four-month low after it fell further to R19.61 against the US dollar as the greenback buoyed by 16-year high US Treasury yield.
This was the rand’s weakest since early May when the US accused South Africa of selling ammunition to Russia, causing a serious diplomatic fallout.
Investors have been flocking to US bonds as indicators in the largest economy in the world show signs of a recovery, with the jobless rate falling to its lowest in seven months, export rising to five-month high, while the US Federal Reserve (Fed) looks to keep interest rates high for longer.
The US dollar index rose for the 10th week in a row on the back of economic resilience to a higher interest rate environment, attracting large buys of the dollar at the expense of emerging markets currencies.
The risk-off sentiment towards emerging markets currencies has remained due to dwindling demand out of China and depressed metal prices, leaving the rand struggling to sustain its fair value.
Investec’s chief economist, Annabel Bishop, said the rand’s weakness had not just begun with the recent US dollar strength as the country had been struggling with the ongoing energy crisis.
“The rand has weakened against the US dollar since last year, from close to R14.50/$ in the first quarter of 2022, to R20.01/$ at a point this year,” Bishop said.
“Specific country risk factors to South Africa have also had a key effect on the value of the rand, including the deterioration in the county’s electricity supply and freight capacity.”
Meanwhile, the JSE All Share Index gained slightly, up nearly 1% to 71 250 points and holding close 11-month lows amid continued jitters about inflation and interest rates.
South African Reserve Bank Governor, Lesetja Kganyago, yesterday reiterated that it was premature to declare victory in the battle to contain price pressures.
Kganyago stressed that the central bank needs to ensure that inflation consecutively remains sustainably closer to 4.5%.
BUSINESS REPORT