South Africa’s rand slumped to a fresh record low against the dollar on a combination of worsening diplomatic tensions and economic risks.
(Bloomberg) — South Africa’s rand slumped to a fresh record low against the dollar on a combination of worsening diplomatic tensions and economic risks.
The rand dropped as much as 1% to 19.87 per dollar, making it the worst performer this month among emerging markets. Its slide this year, only topped by the Argentine peso, is leading traders to look at an unprecedented breach of 20 per greenback.
The latest setback for investors is the government’s plan to provide diplomatic immunity to attendees of BRICS meetings as it prepares to host Russian President Vladimir Putin at an August summit. That’s added to power cuts that are hurting the economy, concerns over China’s growth and renewed gains in the US dollar.
“The rand market trades with a sense of inevitability about currency weakness,” said Robert Hoodless, head of currency analysis at InTouch Capital Markets, adding technically the 20.2480 level looks important to hold this quarter. “FX hedging has become a more sensitive subject, with many now simply looking for safety.”
The headlines around diplomatic immunity have “added to the sense of confusion and uncertainty” around South Africa’s brand, said Hoodless. While the government says immunity is a routine practice, Pretoria’s relations with Moscow have been a source of contention with investors, especially after a row erupted with the US this month over arms shipments.
South African Central Bank Sounds Alarm on Threat of Sanctions
The country’s energy crisis is also showing no signs of easing. Eskom Holdings SOC Ltd. ramped up power cuts on Monday due to delays in returning generating units back to service. Tiger Brands Ltd. shares fell the most since August 1998 as the company flagged the negative effect on its operations from rolling blackouts and the impact of a weakening local currency.
The global environment isn’t helping, with traders fretting over growth in China, the biggest buyer of South African commodity exports. The rand’s fortunes depend to a large extent on the outlook for the world’s second-biggest economy. Meanwhile, the dollar has charged higher this month on the prospect of more Federal Reserve interest-rate hikes.
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