The rand plunged to another three-month low yesterday, weighed down by falling commodity prices, the ongoing energy crisis and fears of further monetary tightening by the US Federal Reserve.
The domestic currency fell 0.18% to close at R18.20 against the US dollar, the weakest it has been since November 2 when it was R18.25/$1, as international and domestic factors ganged up against the rand.
Investec chief economist Annabel Bishop said commodity prices fell in February and were lower on the year, led by broad based drops across the commodity categories, weakening commodity currencies in turn.
Bishop said commodity prices were coming off particularly high bases of a year ago, at or near the peak of the current commodity cycle, but were lower than at the start of this year, as commodity prices remain volatile.
“Commodity currencies have not been the only currencies afflicted by some disappointment in global market sentiment, with emerging market currencies, which the rand is also grouped as, also impacted,” Bishop said.
“Global financial markets are also showing some concern over a lengthier than hoped for disinflation path this year, particularly for inflation core measures, key as it is the core Personal Consumption Expenditure deflator that the US implicitly targets in its interest rate decisions.”
Markets have also been pricing in another two rate hikes of 0.25% in the US this year and that interest rates will need to remain higher for much longer.
Indications are that the US economy was withstanding the higher interest rates better than expected, with the January jobs report showing that the US created just over jobs – well over the 125 000 or so jobs forecast.
As a result, the rand is expected to hover around its current levels, but much depends on the National Budget and what the government eventually does with its newly established powers under the National State of Emergency.
Anchor Capital’s co-chief investment officer, Nolan Wapenaar, said he believed that the government would do something about the energy crisis and that the greenback should give up some of its gains.
Anchor Capital views R16.50 to the dollar as a reasonable target for the end of 2023, but unfortunately, the risks are growing that the outcome may be weaker than projected.
Wapenaar said the rand had been more volatile than expected this year, under-performing its peers, as domestic and foreign factors turned negative.
“Domestically, it is pretty evident that the government’s failures are weighing on the rand. State-owned enterprises are a significant drag on our economy and the currency,” Wapenaar said.
“Unfortunately, President Cyril Ramaphosa’s State of the Nation Address on February 9 did little to convince anyone that there are meaningful plans to stem the decay.
“The market has also been unsettled by the Sona announcements of permanent grants and probable grant increases at a time when the South African Revenue Service Commissioner Edward Kieswetter is saying that tax collection will likely be lower in 2023.
“There are good reasons to believe that the local unit will remain weaker for longer, and we maintain our view that the rand will only partially recover this year.”
Moreover, financial markets investors were also spooked by South Africa’s public sector unions who threatened a mother of all industrial actions over the unresolved wage impasse.
Public sector unions affiliated with the Congress of South African Trade Unions (Cosatu) and the SA Federation of Trade Unions (Saftu) yesterday vowed to embark on a full-blown strike indefinitely this month.
The unions, representing nearly 1 million civil workers, said they would intensify their fight against the government’s unilateral decision to implement a 3% wage hike instead of their demand for a 10% wage increase.
As a result, the unions said they would not be starting wage negotiations for the new financial year with the Department of Public Service and Administration without having resolved the 2022/2023 wage talks.
Meanwhile, the JSE All Share Index closed 1% higher to 80 227 points, the highest since 30 January, mainly supported by resource-linked sectors, tech stocks and industrials.
BUSINESS REPORT