THE RAND yesterday fell to its weakest this year as the US dollar strengthened to a 20-year high amid growing concerns over slowing global economic growth and rising interest rates.
The rand weakened by 0.21 percent to R16.22 to the greenback by 5pm, dragged down by concerns of monetary policy tightening in the US after the Federal Reserve raised interest rates by a widely-expected half percentage point.
This was the rand’s lowest level in five months amid a resurgence of the Covid-19 pandemic in China and South Africa, rolling power cuts and the impact of recent floods in KwaZulu-Natal on the country’s economy.
Investec chief economist Annabel Bishop said the adage "sell in May and go away", typically from risk asset trading, had exacerbated market sensitivity and the rand had increasingly weakened since the second half of April.
“The rand has failed to hold its own against increased US dollar strength, while the rouble has gained on special support measures, including requirements for oil and gas purchases to be made in roubles, export earnings to be converted into roubles and emergency capital controls,” she said.
“South Africa’s leading political party, the ANC, sees its elective conference at the end of this year with Cyril Ramaphosa expected to remain its leader, and so president of SA. However, noisy politics will also have the ability to weaken the rand.”
Meanwhile, stocks on the JSE extended their decline yesterday, with losses coming from bank and commodities-linked assets amid concerns over slowing global economic growth.
The JSE All Share Index fell by 1.78 percent to 66 769 index points, with Kumba Iron Ore leading the pack followed by Capitec Bank and Gold Fields.
Amplify Investment Partners head of strategy Richard Bray said the economic and trade repercussions of geopolitical instability, was continuing to cloud the investment outlook and raise inflation and high interest rates fears.
"The ability to navigate macro forces such as these and incorporate them into tactical investment strategies is at the core of finding investment opportunities," Bray said.
"In theory, increasing interest rates accompany economic growth, confidence and low volatility, but those factors are not evident now."
siphelele.dludla@inl.co.za
BUSINESS REPORT ONLINE