Rand heads for sharp weekly drop after another tortuous week

The rand fared slightly better on Friday morning, but was still headed for a sharp weekly drop, which will qualify it as the worst-performing currency among its emerging-market peers since Monday.

The sharp decline in the value of the rand echoed the data compiled by Institute of International Finance (IIF) showing that SA and China, in particular, felt the acute pain of the recent sell-off in emerging markets.

SA accounted for $600m of the $1.3bn that investors pulled from emerging markets since last Friday, according to the Washington-based institute.

The rand has dropped just more than 4% against the dollar on the week, underperforming even the lira, which was on a steady recovery after hitting a series of record lows.

The weaker currency has a potential to cancel out the net positive effect of the lower oil prices, meaning consumers are less likely to get a reprieve from high fuel prices, which have risen about 11% in so far 2018.

While the recent negative global backdrop, including the Turkish economic crisis, hit the rand, local economic dynamics have also influenced the value of the local currency.

Earlier in the week, local retail sales undershot market expectations, fuelling concerns that SA’s economy could have slipped into a dreaded technical recession, defined as the two successive quarters of economic contraction.

If it plays out, the scenario will be a blow to the “new dawn” narrative championed by President Cyril Ramaphosa, who succeeded Jacob Zuma earlier in the year.