FEARS over global growth, stoked by the US fiscal cliff, Europe’s struggles with its sovereign debt crisis and local factors such as continuing labour unrest have combined to push the rand to its weakest level against the dollar in almost three years.
At 2.24pm, the rand was trading at R8.9454 against the dollar. Some analysts fear the rand, which is one of the world’s most liquid emerging market currencies, could pass the R9 mark against the greenback, which would be its lowest level since early April 2009.
The scurry towards safe-haven assets has seen the JSE all-share fall over the past three days in line with weaker global markets as investors look to safeguard their wealth.
Following President Barack Obama’s re-election last week, investors are now beginning to question whether the country will be able to handle the looming fiscal cliff, where tax breaks could expire for business by the end of the year and workers end up paying 2% extra in tax.
Concerns over Europe’s sovereign debt crisis, and in turn global growth, have also come to the fore in recent weeks with the International Monetary Fund, European Union and the European Central Bank unable to agree on how to bring Greece’s debt down to sustainable levels.
Since the elections, the rand has lost 3.61% against the dollar, making it the worst-performing emerging market currency. The Brazilian real was the second-worst performing currency, losing 1.58% in value. Over the course of this week alone, the rand has lost 2.30% in value.
"There is not much that can offer support for the rand at the moment. News from the mining and farmland unrest and the recent retail figures have disappointed the rand and could see the currency moving past R9 against the dollar," said Vunani Capital markets analyst Kuziva Muganiwa.
Violent protests have flared up in De Doorns, Ceres, Prince Alfred Hamlet, Robertson, Ashton, Bonnievale, Villiersdorp and Piketberg in the Western Cape where farm workers are demanding their minimum pay be raised to R150 per day. This follows illegal strike action in the mining sector, which has dented South Africa’s economic growth.
Adding to the pressure, Statistics South Africa released September’s retail sales data on Wednesday, which indicated a growth of 4.3%. This was less than the 4.8% predicted by economists.
"Recent negative retail data showed the South African consumer was under extreme pressure and the ongoing unrest in the country’s two biggest employers, farming and mining, have foreign investors scared," Mr Muganiwa said.
He said foreign investors want the South African government to have clear ideas and actions on how to resolve these issues.
The Reserve Bank holds its last monetary policy committee (MPC) meeting next week, where the weaker rand and its future inflationary effect will be a focus point. Most economists aren’t expecting the Bank to cut rates, leaving them at 5% after a surprise cut in July.
"Our view is that the MPC will leave rates unchanged until next year or early 2014. The only thing that would change this is if the global economy slips into recession," Standard Bank economist Busisiwe Radebe said.
The MPC begins its three-day meeting on November 20 and will make its decision known on Thursday, November 22.