Rand 3% weaker after 'tsunami' of domestic, international events

The rand lost 3% against the dollar this week and breached the R15/$ mark. By Thursday it reached a low of R15.20/$.

The local unit was at the mercy of market reaction to trade war fears, disputes between US President Donald Trump and the Federal Reserve Bank as well as a Moody's report on Eskom's dire financial results.

It weakened as much as R15.11 to the greenback on Tuesday before taking another knock on Wednesday, weakening to R15.16/$ when Eskom, on a roadshow in London, made comments on the power utility's debt which is some R440bn. According to a Bloomberg report, Eskom is seeking government's intervention to take on its debt.

On Thursday morning the rand opened at R15.05. Wichard Cilliers, head of dealing and director at TreasuryONE noted that the currency made a bit of a retracement and traded at R14.97 on Thursday morning. Trade ranged between R14.96 and R15.20 during the session. The rand closed at R15.02.

Cilliers said if the rand closed the week below the R15.02/$ level, then the currency can be expected to retrace to stronger levels. On Thursday, it closed at R15.09. Local markets were closed on Friday in light of the public holiday.

"In the short term this is our base case outcome, but be cautious in this market as any headline can quickly cause a lot of volatility," he added.

Meanwhile emerging market currencies seemed to be rebounding.

While the Turkish lira gained just over 2% this week, investors appeared to be selling off the rand. It is, however, speculative as to whether investors were selling off the rand in favour of the lira, a market update from TreasuryONE noted.

Bianca Botes, Treasury Partner at Peregrine Treasury Solutions, also shared views that there may be a rebound in the short-term.

"In the short term, the rand could potentially regain some momentum as central banks globally look to cut rates on the back of growth woes," she said.

Lukman Otunuga, senior research analyst at FXTM, said the rand had been "engulfed by a tsunami of domestic and external risks". 

He noted that the depreciating rand would increase the costs of imports and would stimulate inflationary pressures. This could impact the SA Reserve Bank's efforts to cut rates.

Coupled with the news this week of disappointing manufacturing production which was down 3.2% in June, the SA economy has been dealt another blow, Otunuga said.

"While this disappointing report certainly strengthens the case for the South African Central Bank to cut interest rates, rising inflation could become an obstacle," he added.

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