Rand and emerging market peers drop

The rand was down 2.2% on the dollar last week and extended losses another 0.7% by Monday night as the greenback continued to recover from recent weakness versus the euro.

Emerging-market currencies including the fragile five, all took a beating on the day. Both the rouble and Turkey’s lira fell 0.5% to the dollar, while the rand reached a worst intraday level of R13.66, from Friday’s R13.51.

The rand firmed all the way to R12.74 to the dollar at the beginning of September, but has been weakening ever since.

After falling to $1.20 to the euro, the greenback is now at about $1.1740 and looking to push even stronger.

A dovish stance by the US Federal Reserve since the beginning of the year supported emerging market currencies, especially the fragile five — Turkey, Brazil, India, Indonesia and SA — but with rates now set to rise in the US, much of those gains have been relinquished.

At its worst point in 2013 – when the prices of SA’s export commodities had fallen sharply but the price of oil was still above $100 per barrel — SA’s trade deficit was 3% of GDP, leading to a current account deficit of almost 7%.

But those times had changed, said Old Mutual Multi-Managers analyst Dave Mohr.

“The improvement in our current account deficit has been substantial, to 2.2% [of GDP] at present.” Deficits mattered much less now than they did three years ago, he said.

At various points from 2012 to 2014, nine of the 25 major emerging markets ran currentaccount deficits of more than 4% of GDP.

Today, that number had fallen to just two – Colombia and Egypt, said Capital Economics analysts.