This is why the rand is nose-diving

The rand’s continuing plunge on Monday has been mostly due to emerging-market contagion based on events in Turkey, but other factors are conspiring to ensure the local currency is set for a turbulent few months.

Global monetary policy tightening: the US Federal Reserve and European Central Bank are currently moving to unwind unprecedented levels of monetary policy stimulus put in place in the wake of the 2009 financial crisis. Emerging-market currencies and bonds have benefited from ultra-low interest rates in developed markets, as these have prompted investors to seek higher yield.

Ongoing economic data releases out of the US continue to show a robust economy in that country, raising the prospect of faster than expected monetary policy tightening in that country.

Data released on Friday showed that US core consumer price inflation rose 2.4% year on year — its highest in a decade. This was after positive initial jobless claims data were released Thursday. The data are supportive of two more Fed interest-rate hikes in 2018, Rand Merchant Bank analyst Kim Silberman says.