The rand fell past R16.60 against the US dollar on Thursday morning. It was trading at its weakest level in three months, News24 reported.
Just after 10:00, the rand traded at R16.6053 to the dollar. A day earlier it was at R16.34.
“For now, the rand is being driven mainly by broad dollar strength, along with moves in metals and energy prices: in other words, deteriorating terms of trade,” Ruen Naidu, a portfolio manager at Ninety One, told News24.
The dollar gained as yields on US Treasury bonds kept rising. Part of the reason is fear that the US-Israeli war on Iran will keep pushing up oil prices and inflation.
The yield on 10-year US Treasuries reached a 24-year high of 5.3402% on Thursday, AFP reported. High US yields tend to draw global investors towards the dollar.
Higher oil prices and a fairly strong US economy also raised bets on more US interest rate hikes. Higher US rates lead investors to pull money out of emerging markets like South Africa, which weakens the rand.
Both South Africa and the US raised interest rates by 25 basis points last month. Investec chief economist Annabel Bishop said markets expect two more US hikes, in October and December. For South Africa, one more 25 basis point hike is expected before the end of the year.
The dollar has been gaining against most currencies. The euro lost almost 2.5% in September, its biggest loss in more than a year, and the pound lost more than 2%.
The rand lost 2.5% against the dollar over the past month. It is still one of the best performers against the dollar over the past year.
Bishop said the rand remains volatile and depends on world events while the US and Iran stay in a stalemate. She said Brent crude oil is still above $100 a barrel.
She said petrol and diesel prices are likely to rise by about R3 a litre next week. This could push inflation back towards 5% and lead to another repo rate hike in November, she said.
South Africa is paying more for imported fuel, while its commodity exports earn less because of the stronger dollar.
Bastian Teichgreeber, chief investment officer at Prescient Investment Management, said he expects the rand to keep weakening. He told News24 that investors earn little for holding emerging market risk while US real yields are at an 18-year high.
“Many of the key tailwinds that supported the rand over the past 12 to 18 months have largely disappeared,” said Maarten Ackerman, chief economist at CAM Asset Management. He said commodity prices have cooled and the current account has moved into deficit.
“Our expectation is therefore for a further gradual weakening in the currency, with the exchange rate moving towards the R17/$ to R17.50/$ range over time,” Ackerman said.
Source: this article is based on reporting by news24.com. Image: news24.com. Written with the help of AI and published by the Tzaneen Voice Business desk. See our Editorial Standards.
Anelisa Nkuna covers business and money news for Tzaneen Voice. Anelisa reports on the rand, fuel prices, interest rates, jobs, Eskom, Transnet, farming and company results. The aim is simple: explain what the numbers mean for household budgets, small businesses and workers in South Africa.