South Africa’s rand hit a fresh five-year low on Monday as the currency came under sustained pressure amid a worldwide flight from emerging markets.<\/p>\n
The rand weakened to 11.25 against the dollar in morning trading, before regaining some ground against the greenback.<\/p>\n
The South African unit, often seen as a bellwether for emerging market currencies, has been under pressure since the US Federal Reserve announced that it would trim back stimulus spending.<\/p>\n
“The rand has now fallen by 25 percent against the dollar since last May,” said Shilan Shah of Capital Economics.<\/p>\n
While South Africa has been buffeted by the same wind that has hit other emerging markets, domestic mining strikes and the country’s fiscal problems have also made themselves felt.<\/p>\n
South Africa has been dubbed one of the “Fragile Five” emerging economies which are struggling under a large current account deficit.<\/p>\n
“There is clearly a danger that the rand falls much further over the coming months,” said Shah.<\/p>\n
The precipitous fall of the currency possess another headache for the South African Reserve Bank, which meets later this week.<\/p>\n
The bank, already facing unemployment running at 25 percent and weak growth, will have to weigh whether the weak rand poses an additional risk for inflation.<\/p>\n
Consumer inflation is already close to the upper limit of the bank’s target band.<\/p>\n
With South Africa importing a large portion of its goods from overseas, the rand’s weakness risks fuelling inflation further.<\/p>\n
But market watchers think central bank intervention in the currency markets, or an interest rate hike is unlikely, for now.<\/p>\n
“The move is orderly, so there will likely be no intervention or emergency rate hike or similar,” said Peter Attard Montalto of Nomura.<\/p>\n
“If ZAR progresses similarly to 12.0 in an orderly fashion then there also is unlikely to be any FX policy reaction.”<\/p>\n
But currency traders have nonetheless been surprised by the precipitous decline in the rand’s value.<\/p>\n
The currency has breezed through a series of technical resistance levels and the symbolic 11 rand to the dollar rate.<\/p>\n
“The next resistance levels sit at 11.2500, 11.3600, 11.5700, 11.6500 and 11.8900,” Standard Bank said in a note to clients.<\/p>\n
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