The South African rand briefly broke through R18 to the United States Dollar on Friday night on the back of dollar strength.
The rand has been under pressure this year, sliding from under R14.50/$ in March to its current level of around R18/$.
The weaker rand should not come as a surprise and is mainly a result of global economic forces.
JP Morgan’s Anezka Christovova and Sean Kelly predicted a weaker rand because of dollar strength and weak Chinese economic growth.
Christovova and Kelly said the dollar index has strengthened 10% year to date and is currently at a 50-year high.
They expect this trend to continue, driven by a hawkish Federal Reserve and strength in the U.S. economy and job market relative to other countries.
The Federal Reserve increased interest rates to 0.75% this week, which drove dollar strength.
The South African Reserve Bank (SARB) also raised interest rates by 0.75% this week, but it was not enough to avoid losing ground against the dollar.
Another challenge for the rand is the weak Chinese economy, which lowers the demand for South African commodities.
South Africa also has structural problems driving currency weakness, including escalating load-shedding and poor economic policies.
Christovova and Kelly said the rand is their preferred emerging market currency to short and project that it will gradually weaken to R19/$ by September 2023.
It is not only the South African rand that has weakened this year.
The pound plunged by the most since March 2020 and hit the lowest in 37 years against the dollar.
Sterling fell by as much as 3.7% to $1.0840 on Friday, triggering talk among investors about parity with the euro and the dollar and drawing comparisons with emerging markets as the country’s bonds also tumbled.
The chart below shows the United States Dollar to South African rand over the last six months.