Rand back under pressure as it targets R15.00 vs the dollar
The rand came under renewed pressure in mid-day trade on Friday, caught in a trap of broad emerging market frailty, while the local economic outlook remains gloomy with some analysts suggesting that the country may be entering a recession.
The rand lost more than 1.5% against the greenback in mid-day trade – targeting a move back above R15.00.
Bloomberg reported that the crisis in Turkey has the emerging world bracing for a bear market and central bankers staring down fresh complications. It noted that the Turkish lira weakened further on Friday after US Treasury Secretary Steven Mnuchin said the country would face more sanctions if it didn’t release a detained American clergyman.
In South Africa, the median prediction by 22 respondents in a Bloomberg survey found that the average gross domestic product will be 1.4% this year, some way below president Cyril Ramaphosa’s hopes of lifting economic growth to 3% in 2018.
Earlier this week, ratings agency Moody’s warned that the pace of South Africa’s fiscal consolidation will be slower than government forecasts as weaker-than-expected economic growth and a rising public sector wage bill act as fiscal headwinds.
“The rand came under pressure again yesterday from overseas developments regarding US-China trade talk standstill and the US stated that they would impose further sanctions on Turkey if they do not release the pastor,” said Andre Botha, senior currency dealer at TreasuryONE.
“The movement in the rand only showcases the current risk-averse nature in the market regarding emerging markets. At the slightest hint of discord, we have seen massive sell-offs in the emerging markets.”
Locally, Botha noted an overnight push by the Economic Freedom Fighters (EFF) to change the structure of the SARB, where the EFF wants to do away, with independent shareholders and effectively give all power to the finance minister.
“This would mean that the SARB will effectively become state-owned and scraps the current state where the SARB operates independently from the government.
“In a week where land reform was in the news, this will probably stir the pot a little as, unlike maths, two negatives (local issues plus EM crisis) does not make a positive,” Botha said.
“We are still of the opinion that the rand is massively undervalued at these levels and that we could see a recovery once the dust has settled. The theme until we reach some sort of sanity in the market will be volatility, and a run to R15.00 cannot be ignored in the short term,” he said.
The rand traded at the following levels against the major currencies.
- Dollar/Rand: R14.98 (1.64%)
- Pound/Rand: R18.93 (1.69%)
- Euro/Rand: R16.96 (1.78%)
Read: How South Africa’s billionaires were hit by the latest rand crash
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