South African Rand Weakens Amid Fears Of A Global Recession

1 year ago
Wed, 13 Jul 2022 07:03:01 GMT
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South African Rand Weakens Amid Fears Of A Global Recession

The South African rand Monday breached the R17-mark to the US dollar for the first time in 22 months on fears of a global recession as the markets brace for another hawkish US Federal Reserve’s stance on interest rates.

The rand had weakened by more than 1 per cent to R17.08 by 4 pm Monday after opening trade at the JSE at R16.92 to the greenback at 9 am, also pressured by the dollar strength following Friday’s strong US jobs data.

This was the weakest the rand has been since September 2020 after demand spiked following the easing of COVID-19 restrictions.

TreasuryONE senior dealer Andre Botha said the rand has lost the same value as most of the currencies in the basket, which makes the recent move a US dollar play. The Zambian Kwacha has appreciated though. IOL Business cites Botha as saying:

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We have seen the US dollar rampant for the last week as global recession fears and expectations of the US Fed continuing with their aggressive hiking cycle have seen the market running to the US dollar.

There have been fears of a global recession after major central banks went on a gradual monetary policy normalisation due to accelerating global inflation.

South Africa’s higher-than-expected inflation data in June also points to a further interest rate hike later this month after a 50 basis points increase in May.

Investec chief economist Annabel Bishop said the rand was facing significant pressure from US dollar strength and was being afflicted by negative sentiments on international and domestic events. Bishop said:

Market worries over high inflation are being increasingly replaced by fears of excessive interest rate hikes that drive economies into recession, and risk sentiment in global financial markets is fragile and significantly risk-averse.

Domestically, severe load shedding has also worried markets over SA’s growth prospects, which in turn risk negatively impacting state finances via revenue generation.

Eskom yesterday announced that rotational load-shedding will continue for at least the coming week up to 10 days due to a significant backlog in maintenance.

Despite progress on some structural economic reforms in recent years, South Africa’s electricity supply situation has shown no improvement and even deteriorated.

Pindula News



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