The rand hits weakest level in 2021 as international factors bite

The South African rand hit its weakest point in 12 months on Tuesday (23 November) on the back of a stronger dollar and an expected hike in US interest rates.

At 08h20, the rand traded at R15.88/dollar, 0.19% weaker than its previous close and trading at its weakest since November 2020, Reuters reported.

The dollar jumped on bets for quicker interest rate increases after US President Joe Biden backed Federal Reserve chair Jerome Powell for a second term. Biden chose Powell over the other leading candidate Lael Brainard, whom markets consider being the more dovish of the two, though Brainard will be Fed vice-chair.

The move reinforced market expectations of US rate rises next year when the central bank finishes tapering its emergency bond-buying programme.

Higher rates in developed countries often drain capital away from higher-yielding but riskier emerging markets such as South Africa, weighing on their currencies.

Riskier assets have also been shaken up over recent sessions amid surging Covid-19 cases in Europe and renewed curbs, dousing investor hopes of a quicker recovery in consumption and growth worldwide.

In a research note on Monday (23 November), Investec chief economist Annabel Bishop said that the rand remains weaker as global factors continue to provide a drag on emerging market assets.

“Risk classes continue to be heavily graduated, with emerging market assets losing out, particularly in the currency space while advanced economies continue to see gains particularly in equities, and this has benefited South Africa equity prices too, but the rand remains mired weaker.

“The rand currently averages R15.00/dollar so far this quarter, with just over half the quarter reached. The ongoing negative market sentiment to emerging market’s risks further vulnerability for the domestic currency. Both Moody’s and Fitch have retained South Africa on negative rating outlooks.”

At 09h15 on Tuesday (23 November), the rand was trading at the following levels again the major currencies:

• Dollar/Rand: R15.84 (-0.18%)
• Pound/Rand: R21.20 (-0.25%)
• Euro/Rand: R17.80 (-0.15%)

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