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The rand goes from best-performing to worst-performing emerging market currency

After US Federal Reserve flags that it could raise interest rates sooner than expected.
Image: Shutterstock

From an almost three-year high of R13.43 to the US dollar in the first week of June, the rand closed at around R14.40 to the greenback on Friday.

It seems that rand volatility has returned, with the currency over 7% down since June 4.

“The rand is now the worst-performing EM [emerging market] currency, having fallen 2.2% on Friday,” TreasuryONE currency strategist Andre Cilliers commented in a note on Monday.

Most of the decline occurred last week after the US Federal Reserve flagged that it could raise interest rates and curb its bond support measures. This saw a surge in the dollar.

However, the rand was already coming under pressure even before the Fed’s announcement, having weakened to around R14 to the US dollar following Eskom’s worst round of load shedding this year in the second week of June.

Read:

The third wave of Covid-19 infections hitting South Africa, which forced government to increase pandemic-linked restrictions to alert Level 3 last week, is likely to have also weighed on the rand.

Current restrictions include a 10pm to 4am curfew, which means that restaurants and other businesses such as airlines need to stop operations by 9pm daily. Retail liquor trading (for offsite consumption) is also banned from Friday to Sunday under current Level 3 restrictions.

Read: LIVE ARCHIVE: SA moves to Level 3

The Fed’s more hawkish tone on future US interest rates is likely to spur a hike in rates in emerging markets.

The South African Reserve Bank (Sarb) had already signalled at its Monetary Policy Committee meetings in March and May that it could raise the repo rate in the second half of this year.

An increase in consumer inflation, the waning rand and higher Brent oil prices are likely to fuel the Sarb into taking a more hawkish approach.

Read:

Repo rate stays at 3.5%

The strength of the rand in early June, saw the AA flag the prospect of a 6-cents drop in the petrol price for July in its mid-June estimates. However, South African consumers may now be facing an increase in the petrol price considering the almost R1 weakening of the rand against the dollar since its peak of R13.43.

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With such volatility, how in heaven’s name do you ever get predictability, which is what we need for stable growth.

Speak to the FED they are the ones that messed things up.
Another crash in the making, similar to 2008.

The US have been living the high life and now cannot pay up.
So we get punished also.

Don’t under estimate the Rand

Used in 14 or 17 countries in Africa, probably the biggest African currency in Africa.

Makes the job of investing and diversifying a bit of a roller coaster ride. Never a dull moment :).

And everyone last week were saying ‘and you put all your money overseas!’ . The economy will ‘grow at 5.6%’!

Never put your money into an African currency especially when the regime cannot run a bath

Agreed African currencies only appreciate when they knock zeros off. The long term trend is clear 1980 stronger than the dollar currently 14.5 to the dollar after improving from almost R20 to the dollar. So for me the trend is clear ongoing weakening with periods of improvement before further weakening.

Most people in the world pay absolutely no attention to the exchange rate of their national currency. Where currency devaluation is the national policy, everyone knows the hourly exchange rate. In most stable democracies the average citizen does not even know the name of the current prime minister or president. In socialist countries where property rights and the rule of law are under threat, and where most people are dependent on government handouts, everybody knows the names of the president and the rest of the ruling elite.

If you meet a random guy at the shopping centre and he tells you the name of the president and the exchange rate in the same sentence, you know you are in deep trouble.

What exactly is the obsession with the Rand/Dollar exchange rate? I’m not an economist but what I know is that as long as the ANC fails/delays to implement basic economic principles, then the Rand is slowly but surely heading to the R20/1$ mark.

R20 to the dollar is manageable. However start to confiscate farms and property and it will get a lot weaker, R100’s to the dollar. Start to print money to repay debt and we are talking R1000’s to the dollar and Zimbabwe here we come.

”Thunder is good, thunder is impressive, but it’s the lightning that does the work”

Mark Twain.

I didn’t see any lightning!

The Rand is lately, like all emerging and first world currencies, only reacting to the US Dollar. It didn’t weaken a tad on any structural and or economic reasons. The Rand’s idling is good – no misfiring!

You ”buy” the rumour and ”sell” the fact – the fed showed his hand. They didn’t have a choice as their Quantitative easing (the 40 % YOY money growth that they created), has now come home to bite them, in the form of a massive ”inflation” monster!

The days are long gone that these so-called asset and fund managers can talk a reputable currency down or up. Brexit has come and gone – it’s a new world out there. In my trading days, we parked surplus funds in the high yielding 10 year German Bunds- yielding more than 10 %. Today, you’ll be fortunate to get much yield these at all.

Two 0.25 % interest rate rises in the US next year, won’t pay the interest rate expectation and bills of trillions of funds that are looking for yield, all over the world! Our SARB Governor (Lesetja Kganyago) is no fool (he used to be a dealer like me and knows the tricks of the trade!). He has already reacted and indicated that local rates are not cast in stone.
Long live the Rand and our Yield! You sell the Rand at your peril!

The Fed printed 20% of all dollars in existence last year, they exported this inflation to the world. Oil will obviously increase, $100 a barrel will be the new average rate.

If we focus on the 20% that the US diluted its currency by the it makes sense where the rand was trading R14 from a high of R17, when rates go up in the US and the money printing machines stop not only will the rand return to this level but it may break the R20 mark.

The only the that can save us is a special bond that is issued by the IMF that clears the debt of all the world and which will be deemed as a world reserve.

The IMF and its credit arm, the World Bank, is a mechanism that will manufacture a hyperinflationary spiral on a global scale. The world has experienced many bank runs and episodes of hyperinflation throughout history. This is quite a regular occurrence, but the fallout has always been ringfenced and confined to specific jurisdictions or countries. The IMF is the lender of last resort for lenders of last resort, the Reserve Bank for Reserve Banks. The only way to fund unaffordable socialist policies is through currency devaluation. The problem will be shifted from national governments to the IMF who will have to devalue on a global scale.

Then we will have a situation where every nation is in the same dire situation and nobody remains to kickstart the new cycle of economic growth. This is the time when an SDR has the same value as a Zim dollar. This scenario is unavoidable as long as the world uses a fiat currency regime. A Central Bank has only one tool in the toolbox and that tool is called devaluation.

USD/ZAR 20 – oh Really -did you and Nasdaq receive the same bad advice on the ZAR?

In my opinion, The Worlds Debt was cleared when the Gold Standard was dropped! And the countries that still hold the largest Gold Reserves are the most stable on their Continents. Switzerland in Europe, China in Asia, South Africa in Africa and Canada in NorthAmerica!

You must have missed the lightning. The lightning comes first and the thunder afterwards but thunder is definitely coming. As the state moves more and more to socialism and control our Rand is only going one way and that is down.

“US Federal Reserve flagged that it could raise interest rates and curb its bond support measures.” When pigs fly maybe.

What a misleading article. Anyway the rand is stronger than it started 2019. It is still stronger than it was 5 years ago and if u compare it to other emerging market currencies like Brazil/turkey etc it is sharply higher than the last 5 years.

The rand reaction in the last week is only reflecting global flows and liquidity as reaction from FED news. That is just how the rand works it reflects global environment.

All those people who entered the housing market on the back of lower interest rates will start to sweat later this year. All those who bought at the top end of the affordability will be squeezed out again.

End of comments.

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