Rand remains weak as perfect storm hits local economy

The rand had shed 2.3% against the dollar by Tuesday afternoon, as it took the brunt of the news that the South African economy had slipped into a technical recession.

Bond yields spiked and retail, banking and property shares were heavily sold off on the JSE, a situation worsened by a stronger dollar against the euro, with the latter weakening to its worst level in two weeks.

At the same time, Brent crude is poised to hit $80 a barrel for the first time in three months, further adding to inflation woes for the Reserve Bank, which may be forced to hike interest rates in a moribund economy. Oil prices rallied overnight following the news of the immediate evacuation of two Gulf of Mexico oil platforms, in preparation for a hurricane Gordon, Oanda analysts said. Brent crude was last trading at $79.37 a barrel.

The local economy contracted 0.7% in the second quarter, tipping it into a technical recession, which is defined as two consecutive quarters of contraction. The economy declined by an adjusted 2.6% in the first quarter, initially reported at 2.2%.

The prospects for any meaningful improvement later in the year appear dim. “The economy could embark on a recovery over the rest of this year, but a sharp rebound is unlikely,” said Capital Economics analyst Jason Tuvey. “The latest data will further dent hopes that Cyril Ramaphosa’s presidency will lead to a marked turnaround in SA’s economic fortunes,” he said.

The rand is now trading at its weakest level in two years. It was last above R15 to the dollar in July 2016, soon after the UK voted to leave the EU. It reached R11.50 in March this year on Ramaphoria, which now seems to be a distant memory.

At 3pm, the rand was R15.2114 to the dollar from R14.8673, after falling to R15.2602 soon after the GDP announcement. The local currency plunged nearly 11% in August, its biggest monthly drop in more than two years.

The rand was at R17.588 to the euro from R17.2736 and at R19.5313 to the pound from R19.1329. The euro was at $1.1562 from $1.1617.

Local bond yields rose sharply, with the benchmark R186 last bid at 9.18% from 9.02%. The US 10-year treasury was last seen at 2.8749% from 2.8622%.

Source: businesslive.co.za