Wiseman Khuzwayo and Bloomberg
THE RAND weakened 0.7 percent against the dollar yesterday, hitting a one-week low, as the US currency strengthened against a basket of 15 major currencies.
The currency weakened to R12.1379 per dollar by 4.25pm, bringing its depreciation in the past three months to 4.6 percent, the twelfth consecutive quarterly decline. At 5pm it was bid at R12.1372.
The rand could still test new 13-year lows as the government and unions fail to agree in the public sector wage negotiations. The unions are demanding a 10 percent wage hike while the government has offered 5.8 percent. “The fact that government has not made any tangible progress on this matter remains a concerning overarching factor for the rand,” said economists at ETM Analytics.
The current three-year wage agreement expires at mid-night. A dispute has been declared by the unions after negotiations deadlocked.
The National Union of Public Service and Allied Workers (Nupsaw) said yesterday: “Though labour was asking for voluntary mediation, through which an amicable resolution could have been found, government has chosen the route of conciliation in order to resolve the dispute.”
Nupsaw general secretary Success Mataitsane said: “The route of conciliation will therefore only fuel the already negative mood among employees, which would most certainly ignite labour unrest in the form of strikes.”
The rand is set for its longest streak of quarterly declines against the dollar on record as the US draws nearer to raising interest rates.
The slowest economic expansion since the 2009 recession, rolling electricity blackouts and a stubbornly high current account deficit are weighing on the rand at a time when a rise in US interest rates may attract more capital to the dollar.
The Reserve Bank has left its policy rate unchanged since July even as the currency fell to a 13-year low.
“The very large current account deficit in South Africa leaves the rand very vulnerable to higher US rates,” Guillaume Tresca, a Paris-based senior emerging markets strategist at Credit Agricole CIB, said.
“The Reserve Bank is not ready to support the rand,” he said.
The gap on the current account, the broadest measure of trade in goods and services, eased to 5.1 percent of gross domestic product in the fourth quarter, from 5.8 percent. That is still above the Treasury’s forecast of an average 4.5 percent for the year.
The bank kept its benchmark repurchase rate at 5.75 percent on Thursday.
Though it warned inflation pressures might end the pause in the hiking cycle, that was not enough to buoy the currency, said Ion de Vleeschauwer, a currency trader at Bidvest Bank.
“The Fed has come out and actually talked the dollar down, our monetary policy committee came out last week quite hawkish; it all points to rand strength but the rand has done the opposite.”
“It doesn’t instill any confidence in people’s views on the currency. There seems to be just storm clouds gathering for the currency, he said.
Credit Agricole’s Tresca said: “I have a target of R13 by the end of the year.
“In my view, the carry is not enough,” he said, referring to the rate of interest earned on rand assets compared with the cost to finance those positions.