Johannesburg - The rand snapped a five-day winning streak against the dollar yesterday as a commodity rout deepened and also as a reflection of renewed concerns about the impact US interest rate hikes could have on emerging markets.
This was in line with emerging market currencies declining for the first time in a week as divergent monetary policies in the world’s biggest economies spurred demand for dollars.
The probability of a rate hike by the Federal Reserve has risen since last week and is now seen at 70 percent, according to the Fed funds futures market. Raw materials account for more than 50 percent of South Africa’s exports.
The Bloomberg commodity index of 22 raw materials slid to a 16-year low yesterday.
Gold fell 0.62 percent to $1 071.38 (R15 087), while platinum was down 1.62 percent to $851.15.
Copper fell below $4 500 a ton for the first time since 2009, while nickel plunged as much as 5.7 percent to the lowest since 2003. Mining firms have been hit by slowing economic growth in China, that has cut demand in the biggest commodities user and pushed metal prices lower, forcing some producers to cut output.
At 6.33pm, the rand traded at R14.0997 against the dollar, down 0.45 percent from Friday’s close at R13.95.
The rand had climbed to R13.89 late last week, its strongest since November 6, after the Reserve Bank raised the benchmark repo rate by 25 basis points to curb inflationary pressures. The move may not be enough to cushion the rand, which has weakened almost 18 percent this year as part of an emerging market sell-off prompted by expectations that the US will start raising rates.
Meanwhile, the much-awaited third-quarter gross domestic product (GDP) growth figures are out today, and the focus will be on whether the economy has slipped into recession.
“The consensus is that the recession will be avoided, with the metric at 1 percent quarter on quarter on a seasonally adjusted and annualised basis, but the risk is that the figure disappoints,” said Annabel Bishop, the chief economist at Investec in South Africa.
She said that it was not possible for taxes, interest rates and utility tariffs to rise meaningfully without slowing GDP growth.
“South Africa is likely to narrowly avoid recession but should it fail to do so the Reserve Bank tightening cycle will look even more premature and unnecessary than it does already, given that the Fed has yet to hike and the drivers of inflation are all exogenous (cannot be affected by interest rates), while domestic demand has collapsed.”
Bishop added: “Inflation expectations are elevated on these exogenous effects and will not dissipate materially with higher interest rates unless economic growth stalls or worse.”
* Additional reporting by Bloomberg
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