Rand falls another 2% to the dollar as earlier strength fizzles out

After gaining a little ground earlier in the day, the rand had weakened 2% to the dollar by Thursday afternoon, with analysts warning it could be due for further losses.

The rand earlier firmed to R14.32 to the dollar, but a weaker euro resulted in the local currency reversing course. The euro came under pressure despite US President Donald Trump’s approving targeted relief on steel and aluminium quotas for some US trade partners.

Global issues continue to batter the local currency with slightly higher producer price inflation, released on the day, adding further pressure. Headline producer inflation increased to 6.1% in July from 5.9% in June, slightly higher than the market’s expectation of 6%, and was driven, in the main, by higher oil prices.

Producer inflation is a precursor to consumer inflation. With a weakening rand and higher oil prices the SA Reserve Bank could start thinking about rate hikes again if the follow-through in the local economy results in higher inflationary pressures.

Petrol is due to rise by between 23c and 25c a litre on September 5, with diesel set to go up by 28c, due to the weaker rand, according to the AA, citing preliminary figures from the central energy fund.

The Argentinean peso recently hit a record low after President Mauricio Macri said he had asked the International Monetary Fund (IMF) to speed up delivery of a $50bn bailout. Analysts now fear that Argentina may find itself in a crisis similar to that of Turkey, with the Turkish currency plummeting more than 5% to 6.8422 to the dollar on Thursday.

Argentina and Turkey represent a major risk, in that they deter traders from investing in any high-yielding assets, said FXTM analyst Lukman Otunuga. “This means that the situation for the rand could get a lot worse due to external headwinds.”

The Turkish lira has been under pressure for the better part of the week, after Moody’s downgraded 20 of the country’s financial institutions.

The rand also suffered after a rebound by the pound, which held above $1.30 after EU negotiator Michel Barnier said on Wednesday that the EU might consider entering into a partnership with the UK as part of a Brexit deal.

At 3pm, the rand was 1.99% weaker at R14.6349 to the dollar, from R14.3497. It was at R17.0915 to the euro from R16.7978 and at R19.0052 to the pound from R18.7047.

The euro was $1.168 from $1.1707.

Local bonds tracked the weaker rand, with the R186 bid at 8.985% from 8.93%.

The US 10-year treasury was last seen at 2.8631% from 2.8849%.