Rand weakens after disappointing trade data and as dollar perks up

The rand enjoyed relative calm on Friday afternoon, though it weakened a little after the release of worse than expected trade-balance data.

SA recorded a trade deficit of R4.66bn in July, swinging from a surplus of R11.89bn in June, according to SA Revenue Service data. A deficit occurs when the value of imports exceeded exports.

The dollar was also stronger on the day, weighing on the rand, which has been in the line of fire for the better part of August due to poor sentiment towards emerging markets.

“The patient has deteriorated, and the diagnosis is confirmed: it’s contagious,” said Rand Merchant Bank analyst Nema Ramkhelawan-Bhana, referring to the rand. “Like an outbreak of measles, the brutal sell-offs in Argentina and Turkey have spread to other emerging markets, with the affliction resulting in a 1.3% drop in the MSCI EM [emerging market] index.”

The local currency suffered collateral damage as Argentina’s central bank failed to arrest the slide in the peso on Thursday, despite an aggressive hike in interest rates. The rise to 60% from 45% was in an attempt to attract foreign capital. The peso plummeted 15% at one stage before pulling back slightly to settle 12% weaker.

The Turkish lira has battled for the better part of a week to settle down, after Moody’s downgraded 20 of the country’s financial institutions, hurting sentiment towards emerging markets as an asset class.

For consumers, the effect of the rand’s slide will be felt at the fuel pump next week. The central energy fund has forecast a rise in fuel prices of between 23c and 28c per litre.

Diesel users will suffer the most, implying a setback for grain producers, who also face the prospect of high fertiliser costs as a result of the weaker rand.

Despite global dynamics, which have had a far bigger influence on the value of the rand and local bonds, analysts have said uncertainty over the controversial land reform programme has added to the negative undertone.

At 3.26pm, the rand was at R14.7520 to the dollar, from R14.7177. It was at R17.1581 to the euro from R17.1704 and at R19.1333 to the pound from R19.1493.

The benchmark R186 government bond was last bid at 9.03% from 9.015% previously.