Rand vulnerable

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RandMandela

Reuters

A shop owner shows off South Africa's new banknotes, which features an image of former president Nelson Mandela on the front and images of the country's "Big Five" wild animals on the reverse, as they go into official circulation in Pretoria, November 6, 2012.

The rand is set to retain its depreciating trend‚ with the looming US fiscal cliff and domestic factors expected to weigh on the local unit this year.

“South Africa has got its own specific risks‚ which include fragile economic data‚ upcoming ANC national elective conference and a potential further credit downgrade by a ratings agency. These‚ along with looming fiscal challenges in the US‚ cast a cloud on the rand‚” said Mike Keenan‚ Sub-Saharan currency strategist at Absa Capital.

The US‚ the world’s largest economy‚ is under pressure to find ways that would cushion the potential impact of the end of tax cuts on the economy.

The fiscal cliff looms in January next year when tax cuts are expected to be revoked and spending cuts implemented in the US.

Analysts believe the rand will likely come under more pressure than its emerging market peers if solution is not found in the US.

In the wake of the Marikana tragedy on August 16‚ the local currency has lost 5.64% to the US dollar‚ 8.53% to euro and 7.24% to the British pound.

Mohammed Nalla‚ analyst at Nedbank Capital‚ said the local unit was likely to stay on the back foot because of slowing foreign portfolio inflows‚ which play a bigger role in plugging SA’s “extended” current account deficit.

SA’s current account deficit sits at 5.9% of GDP‚ up from 3.3% previously‚ the Treasury said last month. - I-Net Bridge


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