The rand goes from best-performing to worst-performing emerging market currency

From an almost three-year high of R13.43 to the US dollar in the first week of June, the rand closed at around R14.40 to the greenback on Friday.

It seems that rand volatility has returned, with the currency over 7% down since June 4.

“The rand is now the worst-performing EM [emerging market] currency, having fallen 2.2% on Friday,” TreasuryONE currency strategist Andre Cilliers commented in a note on Monday.

Most of the decline occurred last week after the US Federal Reserve flagged that it could raise interest rates and curb its bond support measures. This saw a surge in the dollar.

However, the rand was already coming under pressure even before the Fed’s announcement, having weakened to around R14 to the US dollar following Eskom’s worst round of load shedding this year in the second week of June.

The third wave of Covid-19 infections hitting South Africa, which forced government to increase pandemic-linked restrictions to alert Level 3 last week, is likely to have also weighed on the rand.

Current restrictions include a 10pm to 4am curfew, which means that restaurants and other businesses such as airlines need to stop operations by 9pm daily. Retail liquor trading (for offsite consumption) is also banned from Friday to Sunday under current Level 3 restrictions.

Read: LIVE ARCHIVE: SA moves to Level 3

The Fed’s more hawkish tone on future US interest rates is likely to spur a hike in rates in emerging markets.

The South African Reserve Bank (Sarb) had already signalled at its Monetary Policy Committee meetings in March and May that it could raise the repo rate in the second half of this year.

An increase in consumer inflation, the waning rand and higher Brent oil prices are likely to fuel the Sarb into taking a more hawkish approach.

Read:

Repo rate stays at 3.5%

The strength of the rand in early June, saw the AA flag the prospect of a 6-cents drop in the petrol price for July in its mid-June estimates. However, South African consumers may now be facing an increase in the petrol price considering the almost R1 weakening of the rand against the dollar since its peak of R13.43.