Rand flirts with R11 to the dollar

The South African rand was dangerously close to breaching R11 to the dollar on Wednesday 10 September 2014, as the country’s current account deficit widened amid slight economic recovery.

On Tuesday, 9 September, the rand closed trade at R10.96 to the dollar, the highest close in more than six months. Early morning on Wednesday, the currency crept even closer to the R11 mark, trading at R10.98.

The rand hit its lowest point in more than 5 years back in January, where it hit a low of R11.25 to the dollar amid an emerging market sell off.

At its current levels, the local currency is showing a weakening of 4.6% from R10.50 at the start of the year.

The currency has weakened by 10% from its R9.98 close a year ago.

South African rand vs dollar

10 September 2014 R10.98
1 January 2014 R10.50 4.6%
10 September 2013 R9.98 10.0%

Source: XE.com

According to Reuters, the weakening of the currency was a result of investor concerns over the health of the South African economy, following news that the country’s current account deficit widened to 6.2% – larger than the expected 5.5%.

Data from Investec showed that South Africa’s current account deficit widened in the second quarter of 2014 to R222.1 billion, from R161 billion in the first quarter.

The bad news data followed from a slightly more positive GDP announcement earlier this month, showing Real Gross Domestic Product (GDP) rose 0.6% in the second quarter of the year – though this just offset the 0.6% fall in the first quarter.

The South African economy was hard-hit by an extended platinum mine worker strike in the first half of the year, which was followed by further labour unrest in the gold and metal sectors.

The wider economic impact of these strikes, as well as further pressure on consumers across the country, had economists warning of a possible recession.

A recession is defined as two consecutive quarters of negative growth.

However, SA Reserve Bank governor, Gill Marcus, as well as Stats SA, said that a recession would be unlikely.

Data from Stats SA showed that most sectors of the economy showed growth in the second quarter of the year, though the mining and quarrying industry continued to drag.

The Rand Merchant Bank (RMB) and the Bureau for Economic Research (BER) Business Confidence Index (BCI) showed a five point increase in the second quarter to 46.

The positive growth, the group said, was “encouraging”, moving away from talk of a recession.

“The rise in the RMB/BER BCI mirrors an improvement in sentiment in all the sectors making up the headline index, except for the new vehicle trade,” the group said.

“This is encouraging as only a short period ago some commentators were still worried about a possible recession.”

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Rand flirts with R11 to the dollar