South African rand drops to 3-year low on loadshedding fears

Eskom told parliament on Tuesday that there would be a 45-day delay in returning a generating unit online, according to local media. Photographer: Waldo Swiegers/Bloomberg

Eskom told parliament on Tuesday that there would be a 45-day delay in returning a generating unit online, according to local media. Photographer: Waldo Swiegers/Bloomberg

Published May 10, 2023

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The South African rand plunged to a three-year low on Wednesday after a steep drop in the previous day, while international and domestic government bonds also fell, as fears grew of scheduled blackouts known as loadshedding worsening during winter.

At 10:30, the rand was trading at 18.785 against the U.S. dollar, after hitting its weakest level since early May 2020 at 18.8325 earlier in the day.

On Tuesday, the rand had fallen 1.7%.

South Africa's sovereign dollar bonds dropped, with longer dated maturities falling the most.

The 2052 maturity fell more than 1 cent to 82.4 cents in the dollar. The yield rose above 9%, its highest level in almost six months.

South Africa's struggling state utility Eskom told parliament on Tuesday that there would be a 45-day delay in returning a generating unit online, according to local media.

The delay is likely to add further pressure on the grid during winter, when loadshedding across most parts of the country is already more than 10 hours a day.

"SA bonds and the rand are underperforming their EM counterparts this morning," Kieran Siney of ETM Analytics said in emailed comments.

"Until there is a concrete plan to resolve SA's energy crisis that the market buys into, the underperformance will persist, notwithstanding the attractive yields on offer and deep undervaluation in the ZAR."

The government's local bonds also dropped, with yields on the benchmark 2030 bond rising 17 basis points to 10.5%, the highest level since December.

ETM Analytics said in a separate note on Wednesday morning that misleading headlines on Tuesday had sparked the market rout by giving "the impression that was losing control of the grid".

"SA is in trouble, the grid is under pressure, Eskom does face multiple threats, but none of this is anything new," it said.

The rand is also sensitive to global risks and caution has been mounting ahead of Wednesday's U.S. Consumer Price Inflation (CPI) print scheduled for 14:30.

Reuters