Rand sinks as US claims SA aids Russia

The JSE had its worst drop in a week on Thursday and the rand fell to a record low after the US accusation that SA was aiding Russia’s war effort added to the risk-off environment.

SA-US talks to resolve an impasse over Pretoria’s stance on Russia’s war on Ukraine have come to naught. This has forced the SA government to go back to the drawing board to avoid souring trade ties with the US worth R400bn.

The US accused SA of providing material support to Russia by letting the sanctioned Russian vessel Lady R dock at Simon’s Town.

The US has a range of penalties it can impose, including rolling back aid to SA, for allegedly violating international law, but US ambassador to SA Reuben E Brigety II said the US is still open to dialogue with SA. Meanwhile, local factors, notably loadshedding, weighed on sentiment. Fear of a national grid failure in winter gained momentum, with demand projected to outstrip available supply, but the government insists this is unlikely to happen.

“The main catalysts over the last week have been the increased electricity insecurity and specifically fears of grid collapse or blackout as happened temporarily in Botswana,” said Lourens Pretorius, fixed income portfolio manager at Matrix Fund Managers. “This would obviously result in material negative growth shocks and specifically hamper any prospects of capital flow to SA amidst a swing to a current account deficit.

“Furthermore, accusations of SA’s partiality to Russia through alleged weapon exports to Russia added fuel to the fire,” said Pretorius.

The JSE all share fell more than 1.2% in intraday trading, but pared its losses to close 1% weaker at 76,997 points, while the top 40 was down 0.99%. Banks fell 4.16%, financials 3.45%, industrial metals 3.29%, resources 2.7%, food producers 2.4%, retailers 2.04% and precious metals 1.98%.

The rand lost a further 2% after the US accusations, bringing the currency to an intraday trade of R19.342/$, its worst level since the height of the Covid-19 pandemic in April 2020. “Whilst it is perilous at best to forecast a top in the rand, a strong catalyst for meaningful reversal appears absent for now,” said Pretorius.

At 6.29pm, the rand had weakened 1.59% to R19.1486/$, 1.07% to R20.9251/€ and 0.75% to R23.9699/£. The euro was 0.5% weaker at $1.0926.

In global markets, the Dow Jones industrial average had weakened 0.71% to 33,294 points by 6.50pm, while markets were mixed in Europe.