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Rand hits new 13-year low in emerging market sell-off

‘The rand is just being punished according to its level of fragility on a comparative basis’.

South Africa’s rand extended losses against the dollar on Tuesday, falling to a new 13-year low as emerging market currencies tumbled on heightened expectations that US interest rates could rise by mid year.

Government bonds were not spared in the sell-off, with the yield on the heavily-traded paper due in 2026 climbing 6 basis points to 8.02%, its highest in nine weeks.

The rand hit a session trough of 12.3100/dollar, the weakest it has been since January 2002 according to Thomson Reuters data, and was at 12.3592 by 23:43, down 2.07% on the day.

It was among the five weakest performers in a basket of 25 emerging market (EM) currencies monitored by Reuters; the others being the Russian rouble, Turkish lira, Polish zloty and Hungarian forint.

Because of South Africa’s nagging deficits on its budget and current account, and structural impediments to economic growth including chronic electricity shortages, the local unit tends to be hit hard whenever global risk appetite turns sour.

The local unit has lost more than 8% since its February high of 11.2555, with investors dumping high-yielding but riskier EM assets in favour of the dollar.

“The rand is just being punished according to its level of fragility on a comparative basis, which is high relative to most of its peers,” said Sean McCalgan, a market analyst at ETM.

“It’s a lot of factors which when you sum together leave the rand in a very weak fundamental position.”

The rand failed to gain from Standard and Poor’s comments on Monday that it was unlikely to downgrade South Africa’s BBB- credit status in the next 24 months.

Investors instead focused on underlying weaknesses bedevilling Africa’s most advanced economy, including its worst electricity crisis since 2008.

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