THE rand kicked off the week on the back foot yesterday, weakening to R14.78 against the dollar as risk aversion returned to the markets due to weak Chinese economic growth.
This was a far cry for the rand as it firmed strongly on Friday, closing 1.2 percent firmer on the day at R14.59 as the dollar softened slightly and risk sentiment improved.
China’s economy grew less than expected in the third quarter, expanding 4.9 percent year-on-year from 7.9 percent growth in the previous quarter.
This was the slowest pace of expansion since the third quarter last year on headwinds brought about by power shortages, supply chain bottlenecks, and a persistent property bubble.
Currency Strategist at TreasuryONE Andre Cilliers said the poor Chinese growth and a weak industrial production number had seen emerging markets’ currencies retreat.
“A move back above the R14.70 level for the rand will open up a more significant correction to R14.80,” Cilliers said.
However, the rand managed to make gains later in the day, hovering around R14.68 to the greenback, as risk-off subsided somewhat, with an increased chance that the US tapering could be pushed out to December.
Investec chief economist Annabel Bishop said the rand would remain volatile on sentiment over tapering, global inflation and indeed over the likelihood of interest rate hikes in South Africa.
The SA Reserve Bank has given a strong hint of a rate hike in the fourth quarter after consecutive quarters of rates pause as inflation is on an upward swing.
Headline consumer inflation for September is expected to post 5.1 percent year-on-year on elevated food and fuel inflation, up from 4.9 percent in August.
Bishop said the continued rise in the oil price, in particular, was also causing some near-term concerns, which will push up inflation in November.
The most recent update on movements in the components in the fuel price shows an increase in petrol prices of around R1 per litre for South Africa from the recent high oil price moves.
“Markets will still keep a close eye on US economic data releases, and the rand is at risk of weakness in particular on signs of a marked strength in the US jobs market data, as expectations have begun to see some shift from a November to a December tapering,” Bishop said.
BUSINESS REPORT