Rand weakened by firm dollar, rising domestic risk

A stronger dollar and domestic economic and political risk weighed on South Africa’s rand, which on Wednesday gave back some of the gains from the previous session.

At 1500 GMT the rand was 1.41% weaker at R16.88 per dollar, after approaching R16.56 on Tuesday, its strongest in nearly a month, when a sharp slide in the greenback led to strength across emerging markets.

But on Wednesday, data in the world’s No.1 economy showed a rise in manufacturing activity and eased concerns about the extent of the Covid-19-induced decline in global growth, which boosted the dollar.

In South Africa, nationwide electricity blackouts by state firm Eskom for a second day rekindled concerns about the country’s ability to shake-off recession and a fiscal crisis.

Ratings agency Moody’s said on Tuesday there was a “meaningful risk” of wider deficits in countries such as South Africa as governments were forced to bail out failing state firms.

Waning enthusiasm about President Cyril Ramaphosa’s stance on corruption following a face-off between opposing factions in the governing African National Congress (ANC) over the weekend also stalled the rand’s progress.

“We see the dial flicking on dealing with corruption, but the bar has not yet been met,” Peter Attard Montalto of research firm Intellidex said.

On a day of a positive momentum globally, the Johannesburg Stock Exchange (JSE) started the day higher, but pared most of the gains on the prospect of accelerated power cuts by Eskom.

The strong dollar weighed on gold prices and pushed the South African gold miners’ index lower.

The FTSE/JSE all share index was down 0.12% to end at 55,862 points while the top 40 companies index closed down 0.05% to 51,678 points.

In fixed income, the yield on the benchmark instrument due in 2030 was down a basis point to 9.125%.