Rand takes a knock as the dollar regains some composure
The South African rand took a hefty knock on Thursday morning, after investors moved back into the dollar after it stuttered on the US Federal Reserve’s decision to hold on rates.
The late Wednesday decision by the Fed to keep interest rates unchanged, while emphasising the strength of the labour market, caused the US dollar to buckle, as signs pointed to two more rate rises in 2017.
As a result, the rand enjoyed a bit of stability, reflecting a much firmer position it had been enjoying for much of the week.
However, as international investors digested the news from the states and regained their composure, a fresh rally in the dollar knocked the rand off its more stable footing.
By mid-morning, the rand lost 1.5% against the dollar, moving from R13.32 to R13.52 in matter of hours.
The rand also continued to lose ground against many of its trading partners as investors moved their money offshore in search for higher yields and political stability.
With the Fed decision out of the way, economists said that the rand needed other catalysts to drive a rally, which were not forthcoming.
They warned that the rand will likely weaken even further today, as finance minister Malusi Gigaba continues to pay lip service to the stable economic policies of his predecessor, Pravin Gordhan, while promoting the uncertainty of the political catchphrase of the day, ‘radical economic transformation’.
“Markets are looking for action rather than lip service as far as local economic policy is concerned,” said Rand Bank Merchant economist Isaah Mhlanga.
On Wednesday, Gigaba said that it was possible for South Africa to pull itself out of junk status back to investment grade – however this could only be accomplished with an inclusive economy, that needs to be realised through radical economic transformation.
Read: SA can get out of junk status – but we’ll do it through radical transformation: Gigaba
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