Rand pounded as Britain votes to leave the European Union

The rand tumbled against the dollar in morning trade after Britain voted to leave the European Union, triggering a move to safe-haven currencies including the dollar and the yen.

Emerging market currencies were also sold heavily. The South African rand lost more than 8% against the US currency, trading at R15.54 by 07h40am.

It lost 5% against the euro, at R17.18, and was 2% firmer against the pound, at R20.99.

“The markets are in a panic after optimistic swings yesterday,” one market economist told Reuters.

“It is wild,” said Shane Oliver, Head of Investment Strategy and Chief Economist at AMP Capital in Sydney.

“There is a lot of water to go under the bridge before Britain actually leaves the EU. We don’t know what sort of deal they are going to cut with the EU.”

Britain’s departure from the EU could shave about 0.1 percentage point off South Africa’s economic growth due to the nation’s strong trade ties with the UK and European Union, according to researchers from North-West University.

Daniel Silke, director of the Political Futures Consultancy, said that South Africa requires a broader ‘risk averse’ global investor climate. “Clearly, any Brexit-induced shock to the international financial system will do us no favours.”

He said that a Brexit vote will not only create currency instability, but it can also precipitate a sense of unease within the existing European Union over a host of member countries and even national regions which are increasingly sceptical of the entire EU project.

“Trade remains at of the heart of the UK-SA relationship. Any Brexit vote would hamper levels of trade between UK-based companies and South Africa as a result of negative economic consequences on London.

“Our country would also be harmed by the possible renegotiation of trade agreements between the UK and her EU counterparts,” Silke said.

Finance Minister Pravin Gordhan said last week that the UK pulling out of the EU would “complicate life” for South Africa.

“It may not immediately impact negatively, especially on trade, but the uncertainty could have a serious impact on us as a country,” he told the Sunday Tribune.

Ashburton Investments said that should a “leave” vote become a reality, one could expect the following:

  • Weaker global equity markets;
  • The FTSE would weaken although a lot of companies in this index would benefit from Sterling weakness;
  • A weaker Euro stock market although this market already looks “relatively” cheap;
  • A weaker US market but not to the same degree as the Eurozone and UK although this market is regarded as “relatively” expensive;
  • A weaker Sterling and Euro against the US Dollar with Sterling showing the greatest depreciation;
  • Lower yielding US treasuries and German bonds as being the “risk off” destination of choice;
  • European peripheral country bond yield spreads widening on a greater probability of a Euro “break up”.

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Rand pounded as Britain votes to leave the European Union