THE rand fell to R10.27 to the dollar in midday trade on Wednesday as global markets battled uncertainty ahead of the release of meeting minutes from the US Federal Open Market Committee later in the day.
Worse than expected data also played a part in the local currency’s slide.
Although the rand showed weakness against the major currencies on Wednesday, it did not transgress its previous weakest level this year of R10.36 to the dollar, reached on June 11 2013.
Uncertainty about when the US will taper quantitative easing has seen a reversal of capital flows coming into riskier emerging markets, which has put pressure on their respective currencies.
The local unit touched an intraday worst level of R10.2778 against the greenback, R13.7640 against the euro and R16.1106 against the pound, triggered by the release of slightly weaker consumer inflation (CPI) figures for July.
Consumer inflation rose to 6.3% year on year in July, against the median forecast of a 6.2% year-on-year rise, and from 5.5% in June.
The main drivers of consumer inflation were water and other services that rose 7.9% in July and electricity and other fuel prices which added 7.1% year on year.
The rand had weakened in early trade, in line with its emerging market peers, before the inflation numbers were released, due to a rebound in the greenback after the dollar had fallen to its lowest level since June on Tuesday.
"Once the dollar hit those June lows, investors who thought the dollar had been oversold, re-entered the market and resumed long dollar positions," ETM Analytics analyst Rob Price said.
The rebound in the dollar led to further weakness among emerging market currencies with India’s rupee touching a new low of 64.62 to the dollar on Wednesday, making it the worst-performing emerging market currency against the dollar so far this month.
The Brazilian real is the second-worst performer, followed by the Indonesian rupiah and the rand.
"India, South Africa and Turkey have three of the widest current account deficits among their emerging market peers and often the correction takes place in the currency, which is what we’re seeing today," Mr Price said.
"Tapering will reduce liquidity in the system, which will mean less money flowing into high-risk areas (emerging markets) as there will be a rush back to the dollar," said Thebe Stockbroking head of research Henry Flint.
"This along with the negative sentiment towards South Africa due to a dim outlook for economic growth and labour unrest is expected to add further pressure to the rand," Mr Flint said.
The US Federal Reserve will on Wednesday evening release minutes from its July monetary policy meeting, which will provide upside risk for the rand if the US central bank decides its economy is ready to function without added stimulus.
"The next resistance level is R10.29/$. If we break through this, potentially on the Fed minutes, we could reach R10.34/$-R10.36/$," said Mr Price.