Why the rand is taking a beating right now

In financial markets, the rand exchange rate had a tough week, with broad-based weakness seen against all of the major currencies.

In a research note on Friday (29 October), the Bureau for Economic Research (BER) noted that this was probably due to a combination of factors that have weighed on the local currency.

“These include a possible dent to investor sentiment because of stage 4 load-shedding, as well as uncertainty before the local election on Monday. Some commentators also mentioned that the aggressive 150bps policy rate hike by Brazil earlier in the week may have weighed on the rand as it further widened the interest rate differential between South Africa and Brazil.”

The rand lost further ground on Friday, weakening by more than 1% to trade close to R15.30/dollar around lunchtime.

“In terms of global stock markets, investors seemed to shrug off a weaker-than-expected (initial) 2021Q3 US GDP print (the international section has the details),” the BER said.

“Instead, equities were supported by continued strong company earnings reports. Along with the softer rand that boosted the earnings prospects of local firms with offshore exposure, the local JSE also traded higher through Thursday’s close.”

At 14h15 on Friday (29 October), the rand was trading at the following levels again the major currencies:

  • Dollar/Rand: R15.24
  • Pound/Rand: R21.00
  • Euro/Rand: R17.74

In a separate note this week, investment bank BNP Paribas said that the fair value for the local currency according to its BEER+ model is R13.76, with the group forecasting a move to R14.25 by the end of the year.

“On a more structural and long-term view, the trade surplus should normalise in the upcoming years, in our view, and provide less support to the rand. Hence, we see rand depreciation into
next year, given the associated fiscal risks. A weak local election result for the ANC could facilitate the deterioration by increasing fiscal risks.”

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Why the rand is taking a beating right now