SA Currency ‘Rand’ Under Pressure As It Drops Down Towards R14/$

A man holds new South African banknotes at the value of ten, twenty, fifty, one hundred and two hundred South African Rand depicting former South African president Nelson Mandela at The South African Reserve Bank (SARB) on July 13, 2018 in Pretoria, South Africa. The South African Reserve Bank in celebration of the centenary of Mandela's birth launched its first commemorative banknote series. The larger than normal notes, namely the R10, R20, R50, R100 and R200, depict Mandela's historical journey from his birthplace to his last days. / AFP PHOTO / Phill Magakoe

The rand fell to its weakest level against the dollar in about six weeks on Friday morning, as it was caught up in the Turkish lira’s woes.

The slump in the lira to record lows came amid the diplomatic spat between Turkey and the US over the detention of an American pastor, raising concerns that the US could impose sanctions on Turkey, whose economy is already reeling from hyperinflation.

“Turkey is in trouble after the US announced that it’s reviewing the country’s duty-free access to the US market, which could affect tax on $1.7bn of Turkish exports. Turkish lira is at an all-time low, inflation +15% and central bank seems reluctant to raise rates,” economist Thabi Leoka said in a tweet.

Turkey has in the past few months to raised interest rates aggressively in an attempt to put a floor under the lira, which is the worst-performing emerging-market currency in 2018.

The rand weakened to within striking distance of the symbolic R14/$, putting it on track for its worst weekly decline in since mid-May, potentially dealing a blow to any relief from high fuel prices.

The local currency was under pressure from a strong dollar, which in turn received a boost from a weaker euro after Financial Times reported that the eurozone financial watchdog was concerned about the exposure of the some of the region’s big banks to Turkey.

The euro slid to its weakest level to the dollar in just more than a year, according to Iress data, putting further pressure on the rand, which acts a key variable in the outlook for inflation.

The Reserve Bank kept rates on hold in July, citing rising inflation.

“The risk dynamics are supportive of the rand at the moment,” ETM Analytics analyst Halen Bothma said. The sharp weakness in the rand reflects the risk of environment that has emerged because of the idiosyncratic challenges we have seen in Turkey and Russia.”

The Russian rouble hovered near its weakest point to the dollar in two years, after the US announced fresh sanctions on Thursday.

At 9.04am, the rand was at R13.8802 to the dollar, from R13.7070 at the US close on Thursday. It was at R15.9155 to the euro from R15.8015, and at R17.7505 to the pound from R17.5780.

– BusinessLIVE


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