The South African rand dropped sharply overnight and hit its lowest level in almost three years early on Wednesday, after hawkish comments from U.S. Federal Reserve Chair Jerome Powell and South African data showed a sharp economic contraction.
At 08:30, the rand traded at 18.6000 to the dollar, marginally weaker than its closing level on Tuesday and the lowest it has been since May 2020 in the first months of the Covid-19 pandemic.
The biggest driver was a warning from Powell the previous day that U.S. interest rates might need to go up even faster and higher than expected to rein in inflation, said ETM Analytics in a research note.
His comments pushed the dollar to multi-month highs against most other major currencies on Wednesday.
The rand's slide was compounded by gross domestic product (GDP) figures released on Tuesday that showed South Africa's economy contracted more than expected in the fourth quarter of last year.
If it contracts again in the current quarter, South Africa will be in a recession.
"A strong ZAR view relied heavily on the USD losing ground, but the chances of that happening in the near term have evaporated," ETM said.
The government's benchmark 2030 bond was slightly weaker in early deals, with the yield up 2 basis points to 10.190%.
Reuters