Graphic: renjith krishnan

As export revenues fall and foreign investment flows subside, the rand continues to weaken. The currency flirted with R9 to the dollar for most of yesterday, touching R8.99, at its weakest point, from R8.8750 on Wednesday. It was bid at R8.9502 at 5pm.

Standard Bank analyst Bruce Donald said the rand had been the “worst performing” among commodity and emerging market currencies over the past week.

Nedbank group chief economist Dennis Dykes said the rand had weakened 8.8 percent against the dollar, in the year to date, with most of the losses coming since the start of the wildcat strike at Lonmin’s Marikana unit near Rustenburg on August 16.

The day before, the exchange rate stood at R8.197.

Risk aversion has been heightened by two unresolved issues abroad: whether the US can avoid a fiscal cliff as tax breaks expire and spending cuts kick in; and whether Greece can avoid an exit from the euro zone. But domestic factors have played a part in the currency’s fortunes.

Donald attributed the recent bout of weakness partly to the start of “import-heavy renewable energy projects”, which has prompted dollar buying.

In addition: “The impact of work stoppages at local mines has no doubt impacted export earnings and thus the supply of exporter dollars into the local currency.”

The fall in export earnings will add to the ballooning current account deficit: equal to 6.4 percent of gross domestic product (GDP) in the second quarter. A deficit above 3 percent puts the rand at risk.

The sharply weaker currency could shift the odds on a rate cut, when the Reserve Bank monetary policy committee (MPC) meets next week.

The MPC cut the bank’s repo rate by a half percentage point in July to 5 percent and kept it on hold at the September meeting .

Forward rate agreements, an indicator of market expectations on interest rates, reflect only a 9 percent chance of a further half percentage point cut next week, according to Nedbank Capital strategist Michelle Pingo-de Abreu.

While a slowing economy calls for stimulus in the form of a further rate cut, rising inflation and higher household debt levels could make this a dangerous course. Moreover, recent data on the trade account show the deficit on the current account has probably widened further in the second half of the year.

Donald said, based on the second-quarter data, portfolio flows of R15 billion to R16bn were needed each month to fund the current account deficit. But foreign investment into local bonds and shares has slowed, as foreigners sell local bonds.

The situation is likely to get worse as the year progresses.

Donald said the average monthly trade deficit in the third quarter was R10.9bn, the worst reading in at least 10 years. The bigger the deficit the greater the need for foreign funds.

Inflation data from Statistics SA next Wednesday, ahead of the MPC announcement on Thursday, will shed more light on price pressures building in the economy as the rand weakens. The figure will also influence the MPC decision, after inflation rose to 5.5 percent in September from 5 percent the month before.

Later this month, Stats SA will release third-quarter GDP figures. And early next month the Reserve Bank will publish the third-quarter current account numbers.