Rand hits R15 to the dollar ahead of GDP announcement

The rand hit over R15 to the dollar on Tuesday, as emerging markets came under continued pressure, oil prices hit fresh highs, and government prepared to release quarterly GDP data.

The weakening rand has put significant pressure on the local market in recent months, and comes as government intervened in rising fuel prices on Monday.

Petrol prices were expected to increase by between 23 to 25 cents per litre, but government stepped in with a once-off intervention that neutralised any increase for September.

However, economists believe this may be setting up South African motorists for future pain at the pumps, as international oil prices hit new highs after reports of Iran’s oil production plummeting.

With forecasts showing prices climbing by as much as 30% in months to come, government’s fuel price intervention is seen as ‘artificial’ and delaying the inevitable.

The rand was further pressured by a glut in emerging markets, again led by the Turkish lira and Argentine peso, after attempts to support the currencies by their local governments failed to settle investor worries over the market.

According to reports by Bloomberg, contagion risks from Argentina and Turkey are growing for other emerging markets and economies with weak fundamentals such as those with current-account deficits and high inflation rates.

South Africa is among the most vulnerable, the group said.

The rand crashed in August due to the Turkey problems, which were underpinned by declining foreign relations between it and the United States. The US has also been leading a global trade war, primarily against China, which has added further pressure to markets.

GDP data

Local markets in South Africa are also under pressure due to lingering uncertainty around the country’s land reform agenda, as well as a creeping economy which many analysts believe is in recession.

GDP data expected on Tuesday (4 September) will give a better indication of where exactly growth is currently sitting, with investors looking out for signs of a technical recession.

In the first quarter data, Stats SA reported a GDP decline of 2.2% – any decline in the second quarter would signify South Africa entering a technical recession for the second time in a year.

While economists believe the country will escape the technical recession, with a figure expected at around 0.5% growth, they believe that this is still not a sign of good news for the economy.

By 11h10 on Tuesday, the rand was trading at R15.03 to the dollar. These are the currency indicators:

• ZAR / USD: R15.03 (-1.05%)
• ZAR / GBP: R19.28 (-0.77%)
• ZAR / EUR : R17.38 (-0.62%)

Read: This graph shows how hard government’s land reform talk is hitting the rand