Rand breaches R15/$ as Eskom woes weigh on sentiment

The rand slipped past the psychologically important R15/$ level on Wednesday, leading losses among emerging-market currencies, as US-China trade war fears and Eskom’s debt problems weighed on SA assets.

“The fact we’ve traded above R15/$ says that a lot of people are pessimistic about SA’s credit rating and that there is a chance of an outlook change or downgrade,” Standard Chartered’s global head of emerging markets forex research, Geoffrey Kendrick, said. He added that he was slightly more optimistic than most that Moody’s Investors Service may ultimately not downgrade SA.

Before falling again, the rand had recovered slightly against the dollar earlier, boosted by global optimism that China was not seeking to escalate the year-long US-China trade war. The yuan’s depreciation below $7/$ for the first time in 11 years earlier this week had spooked markets, although China has subsequently let the currency appreciate, maintaining that it was not manipulating its currency.

After spending much of Tuesday firmer, the rand fell in late trade after Moody’s issued a statement saying the government’s recent bailouts of Eskom would do little to stabilise the utility.

“The fact that we have those comments from Moody’s but have seen no action taken towards the outlook or rating says that we have some time until they comment again; that may give us another three or four months,” Kendrick said.

At 3.43pm the rand had lost 1.26% to R15.1129/$, 1.48% to R16.9708/€ and 1.07% to R18.3316/£. The euro was a little firmer at $1.1225.

Eskom’s debt problem has darkened the outlook for the rand, said Monex Europe analyst Simon Harvey.

Overwhelming credit risk, potentially lower rates due to SA Reserve Bank cuts, and flagging fiscal reform continue to pose risks for SA assets, Harvey said. A clear lack of investor interest in SA bonds has resulted in the UK-based foreign exchange company ditching its previous bullish stance towards the currency.

Monex Europe has now revised its third-quarter forecast for the rand downwards, to average R15/$, from R14 previously. The fourth quarter should see it average about R14.60, from R13.80 previously, it said.

[email protected]

[email protected]

Source: businesslive.co.za