The has been the black sheep of the emerging-market currencies – plagued by loadshedding and troubles with state-owned enterprises. While emerging-market currencies have been buoyed by global risk-on sentiment and the surging price of metals, the Rand has remained depressed, highlighting the local challenges South Africa is facing.
After reaching a low of R18.97 against the US Dollar, the Rand regained some ground to close at R18.66 last Friday. However, it has since remained around this level, sitting at a current price of R18.74. Similarly, the Rand reached a low on Thursday against the , of around R24, before retreating to close last week at R23.69.
The resurgence of stage 6 loadshedding coupled with the newly announced R47 billion government guarantee granted to Transnet has severely affected the sentiment surrounding South Africa and the Rand. These local problems have provided a major headwind to the Rand, and have come at an unfortunate time, where external factors all point to a positive tailwind for the Rand and other emerging-market currencies in the face of surging commodity and metal prices, declining (DXY) and risk-on global markets.
Additionally, looking at the technical picture, the Rand had a weak close against the US Dollar, closing above support of R18.5. This opens the possibility of another test of the psychological resistance at R20.
The pair also had a strong monthly close in November, which opens the pair up for another potential attempt at all-time highs.
The unfortunate reality is that while the Rand is fundamentally undervalued by many metrics, the value is so far unable to be realised due to the prevailing negative sentiment.
Another key moment over the past week was the producer price inflation figures, which rose by a full percent between September and October, which caused some concern for the next consumer price index figures as well as consumers already constrained budgets.
Furthermore, the Reserve Bank of South Africa confirmed last week that they are exploring the possibility of tapping into foreign exchange reserves to counter the ever-expanding budget deficit. This is another concerning sign for investors and particularly Rand bulls.
Investors now await employment data out of the US this Friday, for hints on the next , which can determine the bigger-picture path for the Rand and other risk sensitive currencies.
Upcoming market events
Tuesday, 5 December
- ZAR: growth rate quarter-on-quarter Q3
- USD: (October)
Thursday, 7 December
Friday, 8 December
- USD: (November)
- USD: (November)
