Global Courant 2023-05-11 15:46:31
The South African rand has broken through R19 against the dollar.
Load shedding and negative views of the country are rampant in global markets, weakening the currency significantly.
This comes after the rand hit a three-year low on Wednesday, May 10, as investor sentiment for South Africa was dampened by news of the ongoing energy crisis and that shedding is expected to worsen over the winter.
TreasuryONE said there was downward momentum for the rand following a massive domestic bond sell-off worth around R7 billion.
“The market is concerned about the stagnation of the local economy and investors do not want to invest in a country with poor short-term prospects,” the financial services company said.
“As they say, the trend is your friend, and we should see Eskom come out and give a detailed plan on how they intend to stop the electricity crisis,” TreasuryONE said.
The rand has also stayed with the vagaries of the global economy, particularly the decisions of the US Federal Reserve.
South Africa’s currency is highly volatile, and as a result, investors must have a higher risk appetite to go with it.
Unfortunately for the rand, concerns about an economic slowdown and potential recession are ramping up again, keeping risk appetite relatively contained, according to TreasuryONE
According to TreasuryONE, concerns about the economic slowdown are resurfacing as US CPI moderates.
“US CPI fell to 4.9% year-on-year from an expected 5.0% in April, and markets are now pricing in a pause in Fed rate hikes.”
Erik Meyersson, chief emerging markets strategist at SEB AB in Stockholm, said that “the power crisis and associated tax cuts mean the economy is at risk of stagnation with serious bottlenecks in infrastructure and supply chains,” reported News24.
“Add to this some recent sluggish high-frequency statistics, an acceleration in consumer price inflation, and investors will probably have to worry about the near-term economic outlook in South Africa,” Meyersson said.
While some economists and analysts expect things to improve for the local unit, others have expressed deeper concerns, suggesting the currency could weaken.
Read: Another major inflation headache for South Africa
