The rand has breached the R17-mark to the US dollar for the first time in 23 months on fears of a global recession as the US Federal Reserve's looks set to continue its hawkish stance.
The domestic currency was also pressured by the dollar strength following Friday's strong US jobs data showing the US economy remained quite robust amid recession fears, at least for now.
The world’s largest economy added another 372 000 jobs in June, underscoring the resilience of the US recovery but also opening the way for the Fed to continue on its aggressive rate-hiking trajectory.
The rand was trading at R17.02 at 13:50 after opening trade at the JSE at R16.92 to the greenback at 9am, as the dollar began the new week on a firmer note.
This was the weakest the rand has been since August 2020.
Investec chief economist Annabel Bishop said the rand was facing significant pressure from US dollar strength, and was being afflicted by negative sentiment on international and domestic events.
“Market worries over high inflation are being increasingly replaced by fears of excessive interest rate hikes that drive economies into recession, and risk sentiment in global financial markets is fragile and significantly risk averse,” BIshop said.
“Domestically, severe load shedding has also worried markets over SA’s growth prospects, which in turn risk negatively impacting state finances via revenue generation.”
There has been fears of a global recession after major central banks went on a gradual monetary policy normalisation due to accelerating global inflation.
This has been a complete tunraround by the banks following aggressive interest rates cuts to help with economic recovery post-Covid pandemic.
South Africa’s higher-than-expected inflation data in June also points to a further interest rate hike later this month after a 50 basis points increase in May.
TreasuryONE currency specialist Andre Cilliers said it was possible that the rand could weaken even further in the course of this week on the back of rising inflation.
“While the rand remains oversold and due a correction at some stage, there is scope for further weakness to above the R17.00 level in the short term as the local currency succumbs to the strong dollar,” Cilliers said.