This week we look at the Rand, and what has caused it to depreciate violently as of late.
As of Friday 12 May 2023 the Rand has reached new lows:
ZAR:USD 19.30 YTD: -10.85%
ZAR: EUR 21.10 YTD: -11.92%
ZAR: GBP 24.15 YTD: -13.51%
As we know trying to predict or time the Rand is an extremely hard sport! The Rand is driven by many factors both locally and globally, but the recent decline can be mainly attributable to some home goals scored by South Africa.
One of the strange or perplexing factors is that no headline story has set the Rand into freefall. The losses seen of late are equivalent to a “Nenegate” type headline or worse. We feel that this may be a perfect storm situation where we have seen some dollar weakness on headlines of slowing inflation, debt ceiling worries in the US, global growth slowing causing a sell off in emerging market assets. Of course our own South African economic and political woes such as Eskom dominating headlines as always and the news of some significant government blunders of late are also attributable to driving the Rand lower. The Grey Listing of South Africa in late February this year was always going to be a major milestone. This means that trading or attracting foreign assets or flows will become increasingly harder from a regulatory standpoint. This along with the news on Thursday of the US ambassador to South Africa Rueben Brigety accusing South Africa of supplying arms to Russia, is not doing South Africa any favors and goes against an international condemnation of the war invasion of Ukraine. This also will play severely against us into the support for the African Growth & Opportunity Act (AGOA) which is worth in the region of ZAR400bn per annum.
What this means currently is that the Rand is heading to a junk rated currency. It may also mean that we may face an unexpected interest rate hike at the next SARB meeting on 25th May 2023 which will inflict more pain on the South African citizen who is already in a very difficult space with rising unemployment and slowing growth figures.
There is talk amongst the major global banks that the Rand has been oversold and will recover. We do share some of this sentiment in the short term as history has told us that when we see periods of significant Rand weakness it is typically followed by a short period of Rand strength and recovery. The general trend however is rand weakness. The issue now however, is that we need some good news locally to try and stop the rot. Government require some quick wins to try and steady the ship and ensure we don’t attract any more global condemnation or spotlight. With elections ahead and Eskom still dominating headlines something needs to change fundamentally to stop the current decline. Lets see what lies ahead.
Please feel free to contact any of the Paragon Team for further assistance and guidance on navigating these times. Remember we have an in-house experienced Forex Team that can ensure the best exchange rates though our Forex partners. We can also assist in the application for SARS Foreign Investment Allowance (FIA) clearance through our specialized Tax and Forex team.
Regards,
The Paragon Team
