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Rand weakens as it eyes R17 to the dollar amid recession fears

The rand then weakened to R16.80 to the US dollar by 5pm yesterday, its weakest since September 2020, owing to widespread concern that the current round of load-shedding could have long-term effects on the country’s economic growth. File photo.

The rand then weakened to R16.80 to the US dollar by 5pm yesterday, its weakest since September 2020, owing to widespread concern that the current round of load-shedding could have long-term effects on the country’s economic growth. File photo.

Published Jul 7, 2022

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The rand slumped again to its weakest in 22 months yesterday as it was galloping towards R17 to the US dollar pressured by severe power cuts and concerns over the building risk of global recession.

State-owned power utility Eskom yesterday continued implementing Stage 5 rotational load shedding due to multiple plant breakdowns even after the end of the workers’ strike over wages.

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Eskom spokesperson Sikonathi Mantshantsha said load shedding would continue being implemented at varying stages during the next few weeks as the generation-capacity shortages persist.

“Eskom cautions the public that it will take a few weeks for the power generation system to fully recover to pre-strike levels,” he said.

The rand then weakened to R16.80 to the dollar by 5pm yesterday, its weakest since September 2020, owing to widespread concern that the current round of load shedding would have long-term effects on the country’s economic growth.

The currency was also pressured by the dollar’s strength amid the US Federal Reserve’s firm hawkish stance and fears of global recession.

Investec chief economist Annabel Bishop said South Africa’s economy would also be affected by a global recession, and that the impact of load shedding was not helping matters.

Bishop said the third quarter was likely to remain volatile, both for the rand and for South Africa’s bond market.

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“South Africa’s economy will not escape a global recession, and indeed is already at high risk of one from the severe level of load shedding experienced in the third quarter if it persists at level 4,” Bishop said.

“A global recession on top of this, along with an extremely hawkish approach of central banks, has eroded the potential economic growth benefits for South Africa this year from a very robust first quarter growth outcome, and this has also had a negative economic investor sentiment,” she said.

Markets yesterday were awaiting the release of the Federal Open Market Committee minutes to gauge the US monetary authorities’ likely appetite for further large interest rate hikes this year, and even next year’s indicated by the recent dot plot of member predictions.

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With South Africans learning to live with the current cycle of stage 6 load shedding, many believe the ongoing power cuts to be the antagonist behind the weak rand.

However, Citadel Global director Bianca Botes said load shedding was a small contributor in a far greater picture.

Botes said that although load shedding negatively affected economic growth and sentiment, the weak performance of the rand stemmed from numerous factors; so, Eskom simply switching the lights back on would not result in a significant rebound.

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“The global environment is the key contributor to the weak rand, which is affected by geo-political events, such as the Russia-Ukraine war, as well as international inflation and interest rate hikes,” she said.

“The increasing risk of a recession is dampening appetite for risk assets, such as the rand and other emerging market currencies, and assets denominated in these currencies.

“The dollar has surged to 20-year high against the euro, and is now investor’s ‘safe haven’ asset of choice.

“Emerging market currencies – including the rand– will, therefore, feel the pinch of the rising dollar: the stronger the dollar, the more rands are required to buy a dollar,” Botes said.

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