JOHANNESBURG – The rand fell to a fresh 2019 low against the dollar on Monday, breaching the R15.40 mark against the greenback while also weakening significantly against other major currencies as the trade war between Beijing and Washington showed no signs of letting up.
The domestic currency reached a day’s low of R15.46 against the dollar, R17.30 against the euro and R18.68 against the pound, bearing the brunt of emerging-market currency declines since the trade tiff between the world’s two biggest economies re-emerged this month.
The rand has lost more than 8percent of its value against the dollar since early July, marking a sharp sell-off from the R13.98 at which it changed hands against the dollar a month ago, R15.77 against the euro and R17.59 against the pound.
Lukman Otunuga, senior research analyst at FXTM, said fears that the escalating trade dispute between the US and China could sabotage global growth had dented appetite for riskier currencies.
Otunuga said the rand also took a beating on concerns about a possible sovereign downgrade by Moody’s.
“While another possible rate cut by the SA Reserve Bank in September could stimulate economic growth via consumption, it may end up weakening the rand through narrowing interest rate differentials,” Otunuga said.
Gold continued to ride the wave of the trade war bickering, with investors seeing the metal as an attractive safe haven.
Harmony surged 7.11 percent to R46.72 and Gold Fields increased 6.7 percent to R93.75, while Sibanye rose 6.57 percent to R21.40.
AngloGold closed 5 percent higher at R317.61, and DRDGold rose 7.29 percent to R6.33.
Michael Kruger, an investment analyst at Morningstar Investment Management South Africa, said it was not all doom and gloom, and South Africans could find some reprieve in knowing that the value of our currency was only partially affected by South African specific factors.
“One of South Africa’s largest sources of income is its tourism industry. When the rand is weak, South Africa becomes more appealing to tourists as a holiday destination as they can get more bang for their buck,” Kruger said.
“For every eight tourists that visit our country, it is estimated that one permanent job is created in South Africa.”
While the latest round in the trade spat between the US and China weighed on the implications for global economic growth, domestic factors also put pressure on the local currency. The infighting in the ANC, concerns over Eskom and a potential Moody’s downgrade, low economic growth and high unemployment data have also seen the rand on the back foot.
Capital Economics economist John Ashbourne said the pressure was set to continue.
“We expect that problems at Eskom will roll on, and that divisions within the ruling party will prevent President Cyril Ramaphosa from pushing through the reforms that caused the rand to strengthen when he was first appointed,” Ashbourne said.
“We now expect that the currency will fall by another 6.7 percent to end the year at R16.5/$ and end 2020 at R17.5/$,” Ashbourne said.