Rand plummets

The rand has weakened almost 3% against the US dollar this week as load-shedding has been ramped up and investors look to the dollar for safety.

Following a massive dip in May to R19.78/USD, the rand has been on the mend since June, strengthening to R17.27/USD.

However, the currency took a turn at the end of July and has been above R18 to the dollar since the start of August.

On Tuesday, 5 September, the rand plummeted to a low of R19.26/USD.

Future Forex CEO Harry Scherzer said multiple factors resulted in the rand’s most recent fall. However, it is mainly a combination of a soaring dollar and a weakening rand. 

“The dollar itself remains strong. In fact, yields on Treasury bonds have actually increased from 4.22% to 4.26% on the dollar,” Scherzer said. 

“But probably the bigger impact is that alternative currencies and alternative economies like China are floundering in their post-Covid recovery.”

“Consequently, some of China’s biggest property firms are on the verge of bankruptcy, the country’s youth unemployment rate has reached an all-time high of over 20%, and political concerns are scaring investors away from investing there.”

He explained that this leads to less traction for emerging markets and investors putting their funds back in the dollar.

“But along with this, we’re not helping ourselves within our borders, with Eskom having implemented stage 6 load-shedding following plant breakdowns.”

Therefore, the rand’s weakening is a “combination of Eskom not supporting us in South Africa resulting in a weaker rand, but probably the bigger factor here is the soaring dollar leading to a weaker rand as a result”. 

TreasuryONE currency strategist Andre Cilliers echoes Scherzer’s explanation.

He said global growth concerns, driven by a weak Chinese economy, rising oil prices, and persistent high global inflation, are pushing investors to the safety of the US dollar. 

Stats SA recently revealed that South Africa’s economy proved surprisingly resilient, having grown 0.6% in the second quarter of 2023.

However, this news has done little to support the rand, as the currency has settled into a new 19.00/19.30 short-term trading range, Cilliers said.

“Global risk aversion, along with local power issues, will keep the rand on the back foot for now.”

The rand is down 13.45% year-to-date against the greenback on 6 September at around 15:20.