The rand has continued on its downward slide this morning as it weakened deeper to its lowest in 3 years as it tanked to nearly touching R19 to the US dollar amid growing concerns about the deepening domestic power crisis.
The local currency traded 0.5% to R18.94 to the greenback when the JSE opened at 9am but quickly weakened to R18.97/$1 before.
This is the lowest the rand has been since April 2020 and down more than 10% since the beginning of the year.
The rand is currently in a fragile state, with local factors, in particular load shedding, weighing on the economy and currency, and this weakness is expected to continue in the short term.
Eskom is currently implementing rotational power cuts lasting more than 10 hours a day, and there are expectations of severe outages during the winter months as some generation units will not return to service.
TreasuryONE currency strategist Andre Cilliers said the rand was under enormous pressure due to the ongoing energy crisis and the selling off of rand-denominated government securities.
“As we start the day, possibly the R19.00 level can be on the cards. There is some momentum behind the sell-off, as foreigners sold almost R7 billion worth of bonds yesterday,” Cilliers said.
“As they say, the trend is your friend, and we would need to see Eskom come out and give a detailed plan on how they plan to stop the electricity crisis.
“The market is worried about stagnation in the local economy, and investors do not want to invest in a country with a poor short-term outlook.”
The ongoing power crisis has had a significant impact on the country's economy and productivity, resulting in supply chain disruptions, higher production costs and, consequently, elevated inflation.
South Africa has been plagued by persistent power cuts since 2008, with the situation becoming more severe in recent years, attributed to Eskom, which has a history of significant financial losses and poor planning.
Investec chief economist Annabel Bishop said recession fears have not abated, and bank collapses added to market concerns in an environment where the US Federal Reserve retained some hawkish notes to its communication.
Bishop said the rand was reflecting these market jitters, too, as risk aversion rises globally, negatively affecting risky assets, which includes those of emerging markets and their currencies, particularly the rand, often seen as a risk proxy.
“That is, the deep, liquid financial markets of SA make it easy to trade heavily in the domestic currency and rand assets, with foreigners able to heavily buy or sell them in respective times of risk-on or risk-off,” Bishop said.
“The rand has also become much more vulnerable to weakness over the past year as SA has eroded the risk premium offered by the differential between SA and US interest rates, as SA has failed to match the quantum of US interest rate hikes.
“The loss of productive capacity in the economy, from falling electricity supply to lower freight (rail and port) volume, has negatively affected investor sentiment towards SA as well as reducing its mining and manufacturing producing, and so export, ability.
“Less exported means less export revenue, and less tax revenue from this source, negatively affecting the terms of trade and further weakening the rand, with markets worrying over a negative spiral, with this sentiment further depreciating the rand.”
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