Global Courant 2023-05-17 17:25:04
If South Africa continues to support Russia to the extent that it justifies sanctions from the West — or if tax increases continue to worsen — we can expect the rand to weaken even further than its current level, says Harry Scherzer, the CEO of Future Forex. .
However, if the diplomatic issue with the US “gets out of hand”, the currency could recover, he added.
Scherzer said the government has strongly denied the US ambassador’s allegations that South Africa supplied arms to Russia, and if they cannot be proven, the issue could spiral out of control and the fringe could expand over time to recover.
However, according to the CEO, investors may remain shocked by the government’s comfortable relationship with Russia and will remain cautious about the country’s investments, especially if ill-advised decisions continue to be made by the government.
In examining where the volatile rand may end up, Scherzer said investors and South Africans should keep an eye on diplomatic issues as well as global risk sentiment, such as US interest rates, in an effort to gauge the trajectory of the rand.
While the rand is directly tied to the performance of the US dollar, domestic factors are currently the main driver of the unit, with divestitures dragging down economic growth expectations and international diplomatic blunders adding fuel to the fire.
The rand hit an all-time low last week (May 12), battered by several negative factors, including SA-US diplomatic tensions, worries about a more serious tax loss and rumors of a local recession.
The Bureau of Economic Research (BER) stressed that other emerging currencies, while facing similar challenges in terms of international markets, are not experiencing the same level of currency depreciation as the rand.
The depreciation of the rand is not only linked to the US dollar, but also to the pound and the euro, according to the BER.
Last week, the rand witnessed a 5% fall against the dollar, a 3.5% fall against the pound, and reached a record low against the euro, its lowest value since 2016, the group added. up to it.
Speaking of the diplomatic debacle in Russia, Rand Merchant Bank analysts said the panic has greatly abated; however, new problems, such as delays at the country’s only nuclear power plant, have emerged as a negative to the load shedding problem, Reuters reported.
In addition, retail sales data for March showed a 0.7% year-on-year decline, adding to poor sentiment around South Africa and the rand.
Read: ‘Difficult compromises’ are coming to keep South Africa afloat
