South AfricaRand Plummets Towards R17
The South African rand has fallen to its weakest level since July, trading at R16.71 to the US dollar. The currency's decline is attributed to a stronger US dollar and rising global bond yields.
Global Newsflix 2 min read
The South African rand has come under renewed pressure, falling from below R16 to the US dollar to around R16.70, its weakest level since July. On Monday morning, the local currency was trading at R16.71 to the US dollar, R18.67 to the euro, and R22.06 to the British pound.
Investec chief economist Annabel Bishop says the Middle East conflict, higher oil prices, and safe-haven flows into the dollar are weighing on the rand. She notes that the rand has weakened much less against the euro and pound, suggesting the latest move is partly about dollar strength rather than a sharp deterioration in South Africa's fundamentals.
Brent crude remains above $100 a barrel after easing off from recent four-month highs. Equities rallied on Monday after a big miss on US job creation gave the Federal Reserve breathing room to hold off an interest rate hike this month.
The US created just 29,000 jobs in September, well short of forecasts for around 90,000. The readings for the previous two months were also revised down, with July's showing posts were actually lost. Markets immediately repriced the likelihood of a Fed rate hike, with CME's FedWatch tool seeing just over a 20 percent chance.
The South African Reserve Bank raised its policy rate by 25 basis points to 7.25%, citing inflation risks linked to the Iran conflict and higher energy prices. Governor Lesetja Kganyago has continued to emphasise the importance of returning inflation toward the central bank’s 3% target.
South Africa recorded a trade surplus of R20.5 billion in August, exceeding expectations. Exports declined 5.8% month over month to R181.8 billion, while imports fell 7.8% to R161.3 billion. Producer price inflation stood at 5.0% year over year.
The combination of dollar weakness, stronger gold prices, and softer US labor data is giving the South African currency some relief. However, the outlook remains fragile, and a hotter US CPI reading, renewed geopolitical escalation, or a more dovish SARB could quickly undermine the rand.
Key facts
- The South African rand has fallen to its weakest level since July, trading at R16.71 to the US dollar.
- The US created just 29,000 jobs in September, well short of forecasts for around 90,000.
- The South African Reserve Bank raised its policy rate by 25 basis points to 7.25%.
- South Africa recorded a trade surplus of R20.5 billion in August.
Three perspectives
Neutral
The rand's decline is attributed to a combination of factors, including a stronger US dollar and rising global bond yields. The South African Reserve Bank's decision to raise interest rates may help to mitigate the effects of inflation. The outlook for the rand remains uncertain, with various factors influencing its value.
Positive
The trade surplus of R20.5 billion in August is a positive sign for the South African economy. The decline in imports and exports may help to reduce the country's trade deficit. The stronger gold prices may also provide some relief for the rand.
Negative
The rand's decline to its weakest level since July is a concern for the South African economy. The higher oil prices and safe-haven flows into the dollar are weighing on the rand. The fragile outlook for the rand may lead to further declines in its value.
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