Strikes and threatened strikes helped send the rand to a four-year low in the early hours of yesterday morning.
The currency, which traded at around R9.99 to the dollar a little more than a week ago, slumped to R10.44 at 2am.
Mohammed Nalla, the head of strategic research at Nedbank Capital, said the currency last touched that level in March 2009 – at a time when the local economy was in recession.
The unit regained some lost ground to be bid at R10.2851 to the dollar at 5pm, 5.24c softer than on Wednesday, but its underlying weaker trend is likely to persist as tension on the labour front rises.
Just yesterday, the National Union of Mineworkers (NUM) said a pay strike was looming in the gold mines.
Meanwhile, Reuters reported that 90 000 members of NUM in the construction industry would go on strike from Monday to demand higher wages.
Absa Capital noted the sharp fall over the past few days has put the currency within striking distance of R10.50, while Nalla commented: “R10.50, R10.55 and then R10.80 are now the next levels to look for.”
If the currency continues along this path, inflation pressures will increase. Consumer inflation, at 6.3 percent, breached the ceiling of the Reserve Bank’s 3 percent to 6 percent range last month.
Rising inflation reduces the bank’s ability to cut its repo rate from 5 percent, to boost growth. First-quarter growth came in at under 1 percent on an annualised basis.
The release of the minutes of the recent US Federal Open Market Committee (FOMC) meeting added to the rand’s woes as they confirmed fears that US monetary policy will start to tighten soon.
The rand was not the only casualty: the currencies of Indonesia, Malaysia and Thailand hit multi-year lows, according to Reuters, while Bloomberg reported both the Turkish lira and the Indian rupee weakened to record lows.
But local issues played a part in rand weakness.
Nalla said the unit “moved weaker” after the FOMC minutes were released on Wednesday night.
“But in the Asian session, around 12am our time, news broke of the strikes in the mining sector and negotiations breaking down and this appeared to be the catalyst to the high print on the day.”
The motor manufacturing sector is losing about 3 000 vehicles a day due to a strike, construction and clothing and textile workers are planning similar action, while wage talks between gold producers and unions are breaking down after negotiations lasting six weeks. Nalla said wage negotiations in the various sectors, especially the mining sector, would “in all likelihood keep the rand under pressure”.
Mike Schussler, the chief economist of Economists.co.za, puts combined potential turnover losses due to strikes in the motor industry, construction and gold mining at about R1.5 billion a day.
Markets, particularly emerging markets, will remain vulnerable as the US Fed starts withdrawing stimulus.
Barclays Research predicted “tapering” would start next month. Barclays said rates on US treasures rose, equities declined and the dollar strengthened following the release of the minutes.
Bloomberg reported Asian stocks fell yesterday, “with the regional gauge close to wiping out this year’s gains as it heads for its longest losing streak since November, after Federal Reserve minutes showed broad support for stimulus cuts”.
But news that China’s HSBC purchasing manufacturing index (PMI) jumped from 47.7 to 50.1 this month, and Markit’s euro zone composite PMI rose from 50.5 to 51.7, saw equities gain in the euro zone.