Rand at 5-year low vs dollar

·30 Sep 2014

The South African rand hit R11.32 to the US dollar on Tuesday, hitting its lowest point in 5 years.

The previous low point was a close of R11.30 to the dollar on 29 January 2014.

The latest drop comes on the back of a strong dollar, with further strain coming from a widening trade deficit in the country.

Economist Mike Schüssler previously told BusinessTech that the rand’s problems were likely continue as long as the country was buying more than it was selling.

“Our exports are under pressure as both commodity prices have fallen, and strike action has meant that we had even less than normal to sell.”

“We are growing at 1% while our deficit is 6%. We are seen as a fragile country that relies on huge inflows of money to fund this deficit,” Schüssler said.

Rand vs Dollar 5 years

According to data from the South African Revenue Service, South Africa’s trade deficit more than doubled to R16.3 billion in August from a revised R6.82 billion shortfall in July.

Reuters reported that economists had expected an R8 billion gap, but the number is volatile and therefore hard to forecast.

Exports in August fell 9.6% to R77.24 billion while imports were up 1.4% at R93.53 billion.

The August data brings the cumulative deficit for the year to R70.74 billion, compared with a R51.88 billion gap over the same period in 2013.

Economists are of the view that the rand could stay around its current levels for a while, settling at around R11.50 by the end of the year.

However, a rating downgrade for South Africa – which may be likely – could see the rand buckle to R13.00 to the dollar, which coupled with a rates increase in the US, could see it pushed even further to R14 or worse.