The rand plunged to its weakest level against the dollar in close to four years on Thursday as investor concerns about labour unrest in South Africa’s mining sector were raised after further disruptions were reported earlier this week.
Concerns over deteriorating labour relations in the mining sector have kept the rand on the back foot this year, making it the worst-performing emerging-market currency. Labour disputes have reduced output in mining, South Africa’s biggest export earner.
"Markets are concerned about labour unrest that is still doing the rounds," said Bidvest Bank chief dealer Ion de Vleeschauwer.
The rand weakened as much as 0.7% to R9.18/$ before retracing some of its losses to R9.13/$ in late trade, its weakest level since the beginning of April 2009.
In the short term, the rand is likely to weaken and could trade between R9.20/$ and R9.25/$ before it is considered cheap, Mr de Vleeschauwer said.
Coal miner Exxaro Resources on Thursday said workers at two of its mines in Mpumalanga went on an unprotected strike, halting production. The strikes at the mines, which supply Eskom, follow disruption at Lonmin’s operations earlier in the week, where 5800 staff downed tools for a day.
"The domestic backdrop in South Africa usually plays second fiddle in terms of driving US dollar and rand price action, but the situation with respect to Marikana (the epicentre of the recent miners’ strikes) changed this at the end of last year," Rabobank associate director of foreign exchange strategy Christian Lawrence said in London.
"At the start of the year I stated my view that I am more bearish on the rand than any other currency globally. Clearly it has already moved a long way but essentially my view hasn’t changed - there isn’t much to like," he said.
Competition between rival unions at Lonmin’s Marikana mine near Rustenburg last August contributed to 10 days of violence, which resulted the in deaths of 34 miners and 10 policemen.
The rand has been the worst-performing emerging-market currency this year, falling 7.2% against the stronger dollar.
Of the world’s major currencies, only the Japanese yen and the British pound have fared worse.
Falling production from mines across the country since the Marikana tragedy has fed into a widening current account deficit.
Last month, the South African Revenue Service said the trade gap reached R24.5-billion in January, against R2.7-billion in December.
The figure was worse than the R9.7-billion median estimate of economists in a survey conducted by Bloomberg.
"The trade balance in South Africa is also clear cause for concern," Mr Lawrence said.
Trade and Industry Minister Rob Davies said on Thursday that the rand had become "a lot more competitive" and presented an opportunity for manufacturers to boost exports.
However, a weaker currency feeds into higher inflationary pressures, limiting what the Reserve Bank can do to boost growth in a slowing domestic economy.
Last July, the Bank surprised the market with a 50-basis-point cut because of growth concerns.
The central bank has an inflation target of 3%-6%. In January, the figure came in at 5.4%, according to Statistics SA.
At the last monetary policy committee meeting, in January, the Bank warned that further monetary accommodation was constrained by upside risks to the inflation outlook. The next monetary policy committee meeting will be held from March 18-20.