Global Courant 2023-05-11 18:40:42
South Africa’s edge tumbled the most of the world’s major currencies as the nation entered a tight geopolitical corner as everything from a domestic energy crisis to global monetary tightening plagued the currency.
The rand, often seen as a measure of emerging market risk, fell as much as 2.4% to 19.3413, coming within a whisker of its 2020 low of 19.3508. News24 quoted the US ambassador to South Africa as Africa who said the country supplied weapons to Russia.
With Thursday’s move, the currency has increased its losses to 11% this year, one of the worst performances in the developing world.
The rand was already underperforming its peers before the report, as investors worried about the country’s struggles with energy shortages and China’s growth woes.
Mixed data from China has dashed hopes of a smooth and straight recovery for the world’s second-largest economy, as this year’s crippling power outages threaten to wipe out any growth. Traders are now forced to consider geopolitical tensions as another risk factor.
“For many, the fortunes of the rand are becoming more overtly entwined with the political outlook of the African National Congress,” said Robert Hoodless, an analyst with InTouch Capital Markets. “President Cyril Ramaphosa is nowhere to be seen. Perhaps this is due to yet another disastrous diplomatic decision regarding relations with Russia.”
The US is convinced that South Africa supplied arms and ammunition to Russia despite Pretoria taking a neutral stance on the invasion of Ukraine, News24 quoted Ambassador Reuben Brigety as saying.
Concerns over the authorities’ inability to resolve South Africa’s ongoing power supply crisis are also weighing on the brink. The country’s central bank is among those that have slashed growth forecasts for 2023 to near zero due to ongoing energy shortages.
“No matter how hard people try to shut out the scenes, investors keep telling us that the underlying problem for the fringe is governance,” Hoodless said. “When the negativity builds so consistently, you often find a quick reversal – but no one really expects this in the fringe given what appears to be ongoing forex hedging needs and divestitures.”
Read: South Africa is in the dog box
