Global Courant 2023-05-30 19:37:42
South Africa’s rand fell to a new record low against the dollar amid a combination of rising diplomatic tensions and economic risks.
The rand fell as much as 1% to 19.87 per dollar on May 30, 2023, making it the worst performance among emerging markets this month. This year’s decline, surpassed only by the Argentine peso, has traders eyeing an unprecedented break of R20 against the US dollar.
The latest setback for investors is the government’s plan to grant diplomatic immunity to BRICS meeting participants as the government prepares to host Russian President Vladimir Putin at a summit in August.
This has led to power outages that continue to hurt the economy, concerns about China’s growth, and renewed US dollar gains.
“The fringe market is trading with a sense of inevitability about currency weakness,” said Robert Hoodless, head of currency analysis at InTouch Capital Markets, adding that technically the 20.2480 level seems important to hold this quarter.
“FX hedging has become a more sensitive subject with many now simply looking for safety,” he said.
The headlines surrounding diplomatic immunity have “added to the sense of confusion and uncertainty” surrounding the South African brand, Hoodless said.
While the government says immunity is routine practice, Pretoria’s relations with Moscow have been a source of contention with investors, especially after a row broke out with the US over arms supplies this month.
The energy crisis in the country also shows no sign of relief. Eskom staged power cuts on Monday due to delays in getting production units back up and running.
Shares of Tiger Brands fell the most since August 1998 when the company signaled the negative effect on its business of continued blackouts and the impact of a weakening local currency.
The global environment isn’t helping, with traders worried about growth in China, the biggest buyer of South Africa’s commodity exports.
The Rand’s fortunes depend in large part on the outlook for the world’s second-largest economy. Meanwhile, the dollar has strengthened this month ahead of more rate hikes from the Federal Reserve.
Read: South Africa’s GDP doesn’t tell the whole story: Analysts
