JOHANNESBURG – South Africa’s rand plunged to a new all-time low against the U.S. dollar on Monday, recording its biggest daily loss in 19 months as rising concerns about waning growth in China hit commodity currencies.
The rand briefly dropped to R14.00 against the dollar, its weakest level on record according to Thomson Reuters data. At 9am, the local unit traded at R13.26.
The rand was the hardest hit among 25 emerging market currencies as investors sold off high-risk assets amid worries about the impact of slowing global growth in the world’s second biggest economy.
The rand, which is already down more than 15% against the dollar this year, has been particularly vulnerable because of South Africa’s wide current account balance and concerns about sluggish domestic growth, Reuters reported.
“Fears over China’s economy have spooked the markets,” Rand Merchant Trade analyst John Cairns said.
The rand is among the “commodity-linked, high-yielding currencies where a lot of foreign funds were parked,” said Nizam Idris, Singapore-based head of foreign-exchange and fixed- income strategy at Macquarie Bank said to Bloomberg. “A lot of these flows are being reversed right now. Lower Chinese growth means weaker demand for commodities as they are the world’s largest consumer of raw materials by far.”
China’s surprise devaluation of the yuan on Aug. 11 has roiled global markets and reinforced concern of a steep slowdown in the world’s second-largest economy. The Bloomberg Commodity Index, which tracks 22 raw materials, slumped to its lowest level since 1999 on Monday.
Devaluations by Vietnam and Kazakhstan are adding more pressure on central banks from South Africa to Kenya, which have taken aggressive action this year to bolster their currencies.
A rebound could be in the offing as the rand’s slump has pushed its 14-day relative-strength index above the level that indicates it’s oversold. The RSI climbed to 81 on Monday, the highest since May 2013 and above the 70 level that some traders see as a sign the currency has depreciated too much, too fast.
Even so, the slide underlines the challenges faced by President Jacob Zuma’s administration in reigniting investment and growth in an economy running an electricity shortage and persistent fiscal and current-account deficits. South Africa faces more than 60,000 job losses this year in industries ranging from mining to aviation, according to a report by the Solidarity labor union.
“It’s a vicious cycle for commodity-related currencies like the rand as weak commodity prices would feed into weak jobs market, weighing on the economy,” said Tarsicio Tong, a currency trader at Union Bank of Taiwan in Taipei. “It’s hard to see any strong rebound for now.”