The rand has been weakened on the back of significant concerns regarding Russia and the North Atlantic Treaty Organisation (NATO).<\/p>\n\n\n\n
The rand weakened to R19.21\/$ as increasing geopolitical tensions have prompted NATO’s allies to launch a new exercise from February to May this year – Exercise Steadfast Defender 2024. <\/p>\n\n\n\n
NATO said that the exercise would be its largest exercise in decades, with participation from 90,000 troops from all 31 allied countries and Sweden. <\/p>\n\n\n\n
Investec Chief Economist Annabel Bishop said that the aim of the drill is to show that the alliance can reinforce the Euro-Atlantic area through the trans-Atlantic movement of forces from North America. <\/p>\n\n\n\n
Russia said that the exercise is an example of NATO returning to Cold War schemes, with the militaries being prepared for a confrontation with Russia. <\/p>\n\n\n\n
“The escalation in geopolitical tensions has caused risk aversion in global financial markets to rise, weakening EM currencies and so the rand,” Bishop said. <\/p>\n\n\n\n
“Safe havens have benefited, causing the US dollar to strengthen, and commodity prices have weakened.” <\/p>\n\n\n\n
Other concerns <\/strong><\/p>\n\n\n\n Bishop also noted that market expectations on US interest rate cuts have eased, with little to no chance of a January cut. The chance of a March cut has also dropped to below 50%, while the probability of a March cut has decreased from 100% to roughly 75%. <\/p>\n\n\n\n “The shifting in market expectations of the timing of US interest rate cuts also reduces the chance of a South African rate cut in Q1.24, with the MPC meeting this week in SA giving a reading on the economy and interest rate outlook on Thursday,” Bishop said. <\/p>\n\n\n\n