The reality behind the sliding rand

A rampant dollar, caused by a swathe of good results coming out in the US, has pushed the rand exchange value to its lowest point in 13 years. A prime example of the healthy state of the US economy, according to CGIC senior economist, Luke Doig, was the recent announcement of strongerthan- expected jobs data in the US. And this, he told FTW, led to speculation that the US Federal Reserve could start a tightening of monetary policy and raise borrowing costs towards the middle of this year. As a result, investors quickly got out of highyielding emerging market (EM) foreign exchange. And, the most hurt by this sell-off were currencies like the Brazilian real, Mexican peso, Turkish lira – and the SA rand. “The rampant dollar scenario was also joined by SA facing the twin evils of low growth and low investments,” Doig added. Although he attributed the decline in the rand to “a combination of factors” he also stressed that things like the power restraints on SA business “made investors very wary”. Not that SA was alone in its grief. Doig stressed that the rand’s depreciation occurred alongside dollar strength against most of the major currencies. The dollar, for example, posted its largest gain against the euro. And, although many of the EM currencies also suffered, the rand put in an extremely poor performance amongst them, beaten only into second-worst spot by the Russian rouble. Commodity prices also succumbed to the stronger dollar. Oil was the hardest hit, with copper, platinum and gold also falling. At the same time, the Stellenbosch-based Bureau for Economic Research (BER) issued its latest business confidence index. And this fell below the 50-benchmark line to 49.0 points, negatively impacted by electricity constraints amongst businesses on the production side of the economy. Given all this, Doig expects the local currency to remain “very volatile”.