The currency fell as much as 2.2%, the most in emerging
markets, and traded 1.8% down at R13.4528 to the US dollar by 13:24 in Johannesburg, its weakest level since July 23 on a closing
basis. Yields on benchmark government bonds due December 2026 climbed
nine basis points to 8.7%.
“It is a combination of mainly external factors: general sour global
risk sentiment driven by renewed trade jitters between China and the
US, and the stronger dollar on the back of the Fed meeting yesterday,”
said
Jakob Christensen, a Copenhagen-based analyst at Danske Bank A/S. “Given
the rand is a more liquid emerging market currency, it takes a beating
more than other emerging-market currencies when sentiment is hit.”
The dollar gained for a third day after the Fed on Wednesday left
US interest rates unchanged and stuck with a plan to gradually lift
borrowing costs amid “strong” growth that backs bets for a hike in
September. Rising US rates would attract money to the greenback and
away from emerging markets as their yield advantage erodes. The rand
closely tracks the fortunes of the dollar, with the 30-day correlation
in daily moves climbing 0.76 this week. A value of 1 would indicate they
moved in lock step.
The escalating trade war between the US and China is also taking
its toll, with the rand particularly hard-hit amid a slump in prices of
the precious and industrial metals that account for almost half of South
Africa’s exports.
Impala Platinum, the country’s
second-biggest miner of the metal, said on Thursday it will cut jobs and
close shafts to stem losses, exacerbating a jobless rate that
climbed to a 15-year high in the second quarter.
A plan by the ruling African National Congress to amend the
constitution to allow the state to seize land without compensation for
redistribution to the poor has also
battered sentiment, with some investors worried it could undermine
property rights.
Gauge of sentiment
“The rand serves as a gauge for emerging-market currencies,” said
Trieu Pham, a London-based emerging-markets strategist at ING Bank NV.
“The general tone in South Africa has been weaker in markets as well
though, driven by the headline on land expropriation without
compensation.”
Things could get worse for the currency of Africa’s most industrialised economy, according to Investec Bank.
“With the more hawkish tilt in the FOMC’s tone currently pricing into
the market, the rand on a near-term basis could move weaker,”
Annabel Bishop, the chief economist at Investec, wrote in a client note.
The Johannesburg-based lender sees a risk of depreciation to 14 per
US dollar in the remainder of the third quarter. There is a 55%
chance that the rand will touch that level by end-September, according
to Bloomberg’s
probability calculator based on the prices of options to buy and sell
the currency.
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