The South African rand has taken a beating on Thursday, quickly breaking through several technical support levels and briefly pushing past R15 to the dollar.
The rand started the day at R14.85 to the dollar, 1.7% weaker than at the start of the week. By 17h00, the currency had weakened by a further 1% to R15.00.
The currency has been weakening since Tuesday (4 June) after Stats SA reported the lowest quarterly growth figure since the 2008 financial crisis, with Q1 2019 GDP contracting by 3.2%.
This came as a surprise after most economists and analyst had predicted a a decline in the region of 1.5% for the quarter.
The GDP shock was then exacerbated by a double-blow statement from the ANC out of Luthuli House, where the party’s secretary general, Ace Magashule, announced that it would push its deployees in government to adopt and implement a broadened mandate for the South African Reserve Bank, which once again brought the central bank’s independence into question.
Government officials, particularly out of National Treasury quickly moved to deny that any decisions were taken to change the Reserve Bank’s mandate – but this just led to conflicting and contradictory accounts, which left the market with lingering uncertainty.
According to Bianca Botes, Treasury Partner at Peregrine Treasury Solutions, the apparent infighting and policy uncertainty has undermined the small positives made in global trade talks.
“While the dollar has eased off its low, clawing back some ground as optimism improved around trade talks, this has done little for the rand that is struggling to come to grips with ANC infighting and policy uncertainty regarding the SARB,” she said.
“Technical support levels are no match for the rand at this moment with the unit slicing through them like a hot knife through butter.”
Thursday held further bad news for South Africa as ratings agency Moody’s came out with a statement warning of an increased likelihood of a recession hitting the country in 2019.
“Weak survey data suggests that the odds that the economy may experience another technical recession in 2019 are high,” the group said in a macro-analysis.
“We attribute the persistent economic weakness to lacklustre domestic private sector demand — both household spending and investment – and the detrimental impact of widespread power outages on the manufacturing and mining sectors.”
At 17h00, the rand was trading at these levels against major currencies:
- ZAR / USD: R15.00
- ZAR / GBP: R19.06
- ZAR / EUR: R16.90