Rand at lowest in 12 months
The rand tumbled to a 12-month low against the dollar on Thursday, amid renewed fears of emerging-market contagion, this time from Argentina.
The rand tumbled to a 12-month low against the dollar on Thursday, amid renewed fears of emerging-market contagion, this time from Argentina.
After gaining a little ground earlier in the day, the rand had weakened 2.7% to R14.7362/$ from R14.3497/$, soon after the JSE’s close, with analysts warning that it could be due for further losses.
It was 2.4% weaker against the pound at R19.1542.
Argentina increased interest rates by 15 basis points to 60%, after earlier asking the IMF to speed up bailout disbursements to the country.
The peso first strengthened on the news, before losing ground in choppy trade.
At the same time, the situation in Turkey remains equally dire, with the lira plummeting a further 5% to 6.8422/$ before recovering marginally as the central bank authorities in that country continue to officially keep interest rates unchanged.
Earlier on Thursday, the rand had firmed to R14.32/$, but a weaker euro resulted in the local currency coming under renewed pressure.
The euro weakened after US GDP numbers were upgraded to above 4%.
Global issues continue to batter the local currency, with slightly higher producer price inflation released on the day adding further pressure.
Headline producer inflation increased to 6.1% in July from 5.9% in June, slightly higher than the market’s expectation of 6%.
The Argentinean peso recently hit a record low after President Mauricio Macri said he had asked the IMF to speed up delivery of a $50bn bailout.
Analysts now fear that Argentina may find itself in a crisis similar to that of Turkey.
Argentina and Turkey represent a major risk in that they both deter most traders from investing in any high-yielding assets, said FXTM analyst Lukman Otunuga.
“This means that the situation for the rand could get a lot worse due to these external headwinds,” he said.
The Turkish lira has been under pressure for the better part of the week, after Moody’s downgraded 20 of the country’s financial institutions.
The rand also suffered after a rebound by the pound, which held above $1.30 after EU negotiator Michel Barnier said on Wednesday that the EU might consider entering into a partnership with the UK as part of a Brexit deal.
Local bonds softened in tandem with the weaker rand. The yield on the benchmark R186 rose above 9% to 9.04% again after opening at 8.93%.