THE rand tumbled to a six-week low on Monday as investors raced to pull funds from emerging markets around the world, with currencies from India to Indonesia falling as markets braced for the Federal Reserve to start withdrawing support for the US economy.
The rand traded at R10.18/$ in late afternoon, 2% down for the day, compared with the close of R10.06/$ on Friday. It has so far this year shed 17% to the dollar and 3% this month. The sharp fall in value of the local currency was, however, seen by Trade and Industry Minister Rob Davies as an opportunity to boost exports.
Tremors in emerging markets were felt around the world. The Indian rupee hit a record low of 63. 30/$ despite interventionist efforts by the Reserve Bank of India to reduce outflows.
The start of a strike in South Africa’s vehicle sector, and fears of widespread unrest in the mining sector, added to rand weakness.
"Everybody is storming to the door, dumping emerging-market high-yield assets," said Ion de Vleeschauwer, Bidvest Bank’s chief dealer. "For the rand, it’s like a slow-moving train wreck. There’s nothing to support this currency at the moment."
Market participants are focused on the minutes of the latest Fed meeting, expected on Wednesday. Policy makers are contemplating how to end a third round of quantitative easing that has swelled the Fed’s balance sheet to a record $3.59-trillion.
"Fed tapering fears are pressurising emerging markets once again," John Cairns, a currency strategist at Rand Merchant Bank, said. "South Africa can’t escape the burden … We are increasingly concerned about emerging-market contagion."
Analysts pointed out that rising inflation, slow growth and a wide current account deficit were the key elements in the souring of the emerging-market success story.
While a vulnerable rand could stoke inflation, its weakness does offer exporters an edge.
On Monday, Mr Davies seized on the silver lining of a mounting currency storm. He said at the start of a two-day meeting of Brics businessmen: "The depreciation of the rand, in our estimation, presents a number of opportunities, both for exporters as well as for manufacturers that are competing against a surge of imports."
Mr Davies warned that the rand was unlikely to rebound "any time soon" to the stronger levels seen a few years ago.
The Department of Trade and Industry wants manufacturers and exporters to "seize the opportunities and try to take advantage of the new climate that is now being created", Mr Davies said.
"The concern, of course, is that we still face volatility … coming also at a time when there are rising oil prices," he said.
Factory output, which makes up about 15% of the economy, grew at the slowest pace in three months in June, expanding 0.4% from a year earlier, Statistics South Africa said earlier this month, raising doubt over whether manufacturers will be able to capitalise fully on the weaker rand.
The JSE all share index also came under pressure, but selling was more subdued as the weaker rand tends to support resource stocks. It closed 0.28%, or 121.89 points, lower at 42,920.
A weaker rand raises the spectre of inflationary weakness as Statistics South Africa issues last month’s consumer inflation figures on Wednesday. They are expected to breach the upper side of the 6% target at 6.2%, but no rate hikes are expected soon. However, the Bank could lift rates if the rand weakens considerably to, say, R11.50/$, said Standard Bank analyst Bruce Donald.
With Bloomberg, Reuters