The rand hit its lowest level in 5 months on Thursday afternoon (7 June), as sentiment toward the currency was soured by a combination of poor economic growth and investors fleeing emerging markets.
The currency was 2.04% weaker at R12.98 per dollar, at 16h00 local time, losing most of that ground as New York traders came online and offloaded their risk holdings as turbulence in other emerging markets and weak growth locally led to some feverish selling, Reuters reported.
“We’ve seen some panic selling as the rand went past 12.85. A couple of stops were triggered and now its momentum trading. It’s nothing to do with South Africa’s fundamentals, it’s a global EM sentiment thing,” said fixed-income specialist at Rand Merchant Bank Michelle Wohlberg.
The fact that other Brazil’s real sunk to a new 2-year low alongside other poorly performing emerging markets also likely contributed towards the slip.
“In this last move we’ve seen a lot of aggressive offshore buyers. We are not sure if there’s a large flow behind it. We’ve also seen the Brazilian currency weakening significantly, and other EM’s seem to be following suit,” said senior trader at Standard Bank Oliver Alwar.
“The rand’s still suffering from spillover effects from Tuesday’s GDP numbers. People are worried and aren’t convinced about the direction of the rand and the economy long-term,” added currency trader at TreasuryOne Wichard Cilliers.
The rand had recovered slightly to R12.90 by 17h30, with traders cautiously eyeing the psychological level of R13.00.
Speaking earlier in the day ,Andre Botha, senior currency dealer at TreasuryONE said that one of the knock-on effects of the poor GDP data was the fact that that every release from now on will be combed over and has the potential to be market moving.
However, other analysts have been more positive on the rand and the currency over the long-term, with Standard Chartered Bank analysts believing that the currency could end up as strong as R11.80 per dollar by the end of 2018.