Rand versus emerging market currencies

The rand has been hammered by increased load-shedding, economic uncertainty, and its dispute with the United States, making it the worst-performing emerging market currency.

The South African currency weakened to 19.36 per dollar on Friday morning, breaching the all-time low of 19.35 set during the Covid-19 lockdown in April 2020.

The weak rand will further hurt the struggling economy through higher inflation and increased interest rates.

What frustrates many South Africans is that most of the pain related to rand weakness is self-inflicted.

Head of markets research at RMB Isaah Mhlanga told The Money Show that this is a domestic concern that is being reflected in the currency.

He mentioned some global events affecting the rand’s value, like poor data coming from China and geopolitical tensions.

However, he said the biggest driver had been the bad sentiment surrounding Eskom and potential stage 8 and above load-shedding.

While the possibility of a grid collapse remains an extreme scenario, every time the country switches from stage 4 to stage 6, it brings fears of a collapse which are reflected in the rand.

Sasfin Securities’ David Shapiro said he is very concerned about the country’s structural problems and the impact of load-shedding.

He pointed to the high operational costs retailers like The Foschini Group incur to keep the lights on during load-shedding.

This comes in addition to the customers they lose in that time, which Shapiro identifies as the “real problem” for these companies.

Many people highlight that other countries also have challenges, including high inflation and poor economic growth.

However, an analysis of emerging economy currencies showed that South Africa lags behind countries like India, Brazil, and Australia.

It confirms that South Africa’s structural problems, including power shortages, poor economic policies, and infrastructure collapse, play a big role in the rand’s weakness.

The chart below shows the rand’s value against the US Dollar compared with the Brazilian Real, the Indian Rupee, and the Australian Dollar.


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