Rand hits weakest levels since Lady-R drama
The rand hit its weakest levels since the Lardy-R saga in June 2023, after a stronger dollar spooked investors out of riskier markets on Wednesday (4 October).
Following some relative stability at the end of September, the rand slumped to around R19.41 to the dollar in early trade on Wednesday before pulling back to around R19.40 in the afternoon.
According to Harry Scherzer, CEO of Future Forex, this is the weakest the rand has been since June when allegations that South Africa loaded weapons into the Russian Lady-R vessel over December 2022 sent markets into a spin.
At the time the rand approached R20 to the dollar, egged on by a slew of market concerns that also included investor worries over grid collapse and a total blackout, as well as deteriorating market conditions at China at the time.
The current weakness is far less bombastic and does not entail high political drama, however.
Scherzer noted that the rand is mostly taking a beating from the resurgence of the dollar – while local factors are also at play, keeping the currency on the back foot.
“The resurgence of the dollar comes down to multiple things, including the Federal Reserve’s expectation in the US to increase interest rates, which leads to a stronger dollar.
“Secondly is that US bond yields have started rallying; thirdy is that there’s an appreciating value of around 0.37% in the dollar relative to emerging currencies in a global basket and lastly is some unexpected growth in the labour market in America,” he said.
However, South Africa is also not helping itself back home.
“The Purchasing Managers index (PMI) has demonstrated low demand at the moment, implying that the demand for local goods has worsened with there being less demand recently.
“Along with this, there are heightened concerns about inflation due to the recent petrol price increase, and this has caused South Africa’s 2030 government bonds to weaken,” Scherzer said.
The analyst noted that there has also been a decline in the JSE all share index – all of this is combining to deliver a much weaker rand and a stronger dollar.
Investec chief economist Annabel Bishop noted this week that the rand has almost “settled” into its weaker positioning.
While the currency typically has the characteristic of being highly volatile and swinging wildly (it has swung between R17 and almost R20 to the dollar this year alone), it has been rooted in a smaller range above R19 to the dollar for some time.
According to Bishop, this is unlikely to change any time for the rest of the year.
Bishop said that the rand will likely experience low volatility as the market waits for the US Fed’s next meeting on 1 November, followed by the final one for the year on 13 December. However, markets have not fully factored in a further 25 basis point hike.
“That is, markets do not expect the US to hike its interest rates again this year, but have shifted interest rate cut expectations for the US further out, with the first seen to occur end 2024. These shifts in expectations undermined the rand somewhat last month,” she said.
Higher US interest rates generally weaken the rand and other emerging currencies as investors turn to the relatively low-risk, high-reward of the dollar.
By 14h00 the rand was trading at these levels against major currencies:
- ZAR/USD: R19.31
- ZAR/EUR: R20.28
- ZAR/GBP: R23.45
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