Concerns about South Africa’s socioeconomic problems and labour disputes, and renewed disquiet about the global economy, combined to push the rand past R9.10/$ on Monday - its weakest level against the dollar in nearly four years.
Foreigners have been selling South Africa’s debt since Anglo American Platinum announced that it may have to cut its workforce by 14 000 as it restructures its operations and farm workers renewed their wage strike. Investors are wary of a continuation of last year’s disputes that led to wildcat strikes across the mining sector.
There was risk-off trade in global markets as concerns over the US fiscal cliff and weak global growth weighed, but the rand has been the worst-hit emerging market currency, London-based Rabobank’s emerging markets foreign exchange researcher, Christian Lawrence, said on Monday.
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"In times of risk off, the rand sells off anyway, but the domestic problems make it a potent cocktail," he said.
Standard Bank analyst Bruce Donald said foreign participation in the local bond market had been the key source of external funding required to cover the large current account shortfall.
South Africa’s current account deficit reached 6.4% of gross domestic product in the third quarter of last year, according to the Reserve Bank. A deficit occurs when a country’s imports of goods, services and transfers exceeds its exports.
Apart from domestic woes, markets are also gearing themselves for a dispute between US Republicans and Democrats in the coming weeks.
The parties need agreement on raising the borrowing limit next month, and failure to close a deal could mean a default on US debt or another downgrade.
"People are starting to look forward to when the US fiscal troubles are back in the spotlight next month.… The world isn’t all rosy yet," Mr Lawrence said.
The rand was the worst-performing emerging-market currency on Monday, weakening as much as 2.3% against the dollar and dropping to R9.13/$ in early evening trade.
"Over the course of the year, it’s hard to see how the rand could push back," Mr Lawrence said.
Since the start of the year, the rand has given up 7.6% in value against the dollar, 8.9% against the euro and 3.7% against the pound.
Standard Bank said in note last week that the rand would trade between R8.75/$ and R9.25/$ this year.
"The country’s large external funding requirement means that the currency is very vulnerable to any upset in capital flows," the bank said.
The weaker currency could prove beneficial to exporters, Trade and Industry Minister Rob Davies said in Davos, Switzerland, last week.
But miners have been weighed down by the negative sentiment.
While gold miners usually benefit from a weak rand, stocks such as Harmony Gold have come under selling pressure and are on course to end the month on a negative note compared with other JSE stocks. Miners’ costs are priced in rand, and their sales in dollars.
Despite the benefit of a weaker rand, investors continue to shun the sector, which is plagued by rising costs, against the generally improving global backdrop.
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