Rand breaks through R19 to the dollar

 ·11 May 2023

The South African rand has breached R19 to the dollar.

Load shedding and negative views of the country have run rampant within the global markets has pushed the currency to weaken significantly.

This comes after the rand hit a three-year low on Wednesday, 10 May, as investor sentiment for South Africa was dampened by news around the ongoing power crisis and that load shedding is expected to worsen during winter.

TreasuryONE said there was downward momentum for the rand following an en masse sell-off of domestic bonds worth roughly R7 billion.

“The market is worried about stagnation in the local economy, and investors do not want to invest in a country with a poor short-term outlook,” said the financial services firm.

“As they say, the trend is your friend, and we would need to see Eskom come out and give a detailed plan on how they plan to stop the electricity crisis,” said TreasuryONE.

The rand has also remained at the whim of the global economy, specifically the decisions of the US Federal Reserve.

South Africa’s currency is highly volatile, and as a result, for investors to engage with it, they have to have a higher risk appetite.

Unfortunately for the rand, concerns over an economic slowdown and possible recession are on the rise again, and this is keeping risk appetite relatively muted, said TreasuryONE

According to TreasuryONE, economic slowdown concerns reappear as US CPI moderates.

“US CPI moderated to 4.9% YoY versus an expected 5.0% in April, and markets are now pricing in a pause in rate hikes by the Fed.”

Erik Meyersson, the chief emerging-markets strategist at SEB AB in Stockholm, said that “The power crisis and the associated load shedding means the economy is at risk of stagnation with severe bottlenecks overall in infrastructure and through supply chains,” reported News24.

“Add to this some recent sluggish high-frequency statistics, an acceleration in consumer price inflation, and investors will likely have cause to worry about the near-term economic prospects in South Africa,” Meyersson said.

While some economists and analysts anticipate that things will improve for the local unit, others have expressed deeper concerns, indicating that the currency could trend weaker.


Read: Another major inflation headache for South Africa

Show comments
Subscribe to our daily newsletter