The South African rand fell to its lowest level in nearly three years on Wednesday (March 8) after the US Federal Reserve signaled there is room for further rate hikes as the local economy teeters on the brink of recession due to the shedding of the tax.
On Wednesday morning, the rand was trading at R18.62 per dollar, slightly weaker than its closing level on Tuesday and the weakest since May 2020 – the early months of the pandemic.
US Federal Reserve Chairman Jerome Powell warned Tuesday (March 7) that US interest rates could rise even faster and higher than expected to contain inflation – this was the biggest driver of the rand’s fall, ETM said Analytics.
The dollar, on the other hand, reached multi-month highs against other major currencies.
Rand strength relied heavily on the loss of the dollar. However, the market is pointing to the opposite as investors are decidedly risk averse and are hitting emerging markets.
“The rand drop was exacerbated by gross domestic product (GDP) data released Tuesday, which showed that the South African economy contracted more than expected in the fourth quarter of last year,” Reuters reported.
Data from Stats SA showed that growth statistics for the country are likely to see another downward revision as GDP fell by 1.3% for the last quarter of 2022 – more than the majority of economists who predict a 0.4% decline. % predicted.
Load shedding continues to inhibit economic activity in all sectors of the country, making the country even less attractive to foreign investors.
As a result, investor interest in the country remains subdued relative to other emerging market currencies ETM analysis.
Rolling blackouts have plagued the country every day this year.
To add salt to the wound, South Africa would likely be in a technical recession if growth contracted again this quarter.
Maarten Ackerman, the chief economist at Citadel, said: “Everything indicates that the first quarter of 2023 will also be negative because of the amount of burden we’re seeing right now, coupled with the logistical issues we’re facing in our rails. and port infrastructure.”
A recession can negatively impact the rand by depressing its value against other currencies. This can occur due to factors such as reduced economic activity, lower demand for exports and lower interest rates.
This bad news comes as the currency has been battered in recent weeks.
The rand has plummeted, with the greylisting taking its toll on the currency at the end of February, as well as the recent cabinet reshuffle on March 6.
At 12:20, that rand was trading against major at these levels:
R18.62/$ R19.64/€ R22.05/£
Read: All signs point to a recession
