Rand slams through R18/$ on dollar strength

The rand has taken a big hit this week as the dollar advanced, however, local analysts say that one of the things that may also be weighing on the currency are local factors, such as jitters over the EFF.

This took place on Tuesday, and by late afternoon, the rand lost almost 1.5% against the dollar to trade at R18.17/$.

Reuters reported that the dollar went up a fresh three-week high against an index of different currencies ahead of a job data release that could give clues on whether the Federal Reserve is set to stick to its monetary tightening plan, while weak economic data in Asia raised global growth fears boosting the safe-haven dollar.

Fawad Razaqzada at City Index and FOREX.com told AFP that the greenback has found renewed strength in recent days due to data that was highlighting the resilience of the world’s largest economy, where signs of disinflation have been offset by strength in consumption, suggesting that a severe recession can be avoided, even with interest rates at 5.5 percent.

The portfolio manager and strategist at PSG Wealth Old Oak, Schalk Louw mentions that the rand also weakened more than 1% against other key currencies however, as it was trading at R23.21/pound and R19.94/euro. Perhaps this was a reflection of local concerns as well.

As the country is currently facing sizeable diesel and petrol price increases, Louw gave a warning that higher oil prices could bring renewed inflationary pressures. Bloomberg reported that in July, oil saw its largest monthly increase in more than a year as demand grew stronger while oil producers were cutting production.  “There is no guarantee that oil prices could not trigger a second round of inflation,” said Louw.

This means that the interest rates could remain high for a while, particularly in the US, where economic data remains strong. Additionally, political jitters may also have hit the rand, says Louw.

It was on Tuesday when the tech billionaire Elon Musk accused EFF leader Julius Malema of “openly pushing for the genocide of white people in South Africa” on his social media platform X, formerly known as Twitter. This came after Malema chanted the struggle song Kill the Boer at the party’s 10th-anniversary rally this weekend.

But the new data painted a bleak picture of the South African economy, which has been hit by load shedding and Transnet woes.

Sentiment in the local manufacturing industry fell to its weakest level since the July riots in 2021, Bloomberg reported. Absa Purchasing Managers’ Index, compiled by the Bureau for Economic Research, fell to 47.3 in July from 47.6 a month earlier.