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The rand took a hit on Monday, breaking through the R19/$ level and trading around its weakest level in a month. It has lost almost 5 percent to the dollar over the past month.
The latest bout of weakness is not driven by South African factors – instead, fear and uncertainty have gripped the market, which means investors are dumping riskier assets for the safety of the US dollar, says Schalk Louw, portfolio manager and strategist at PSG Wealth Old Oak.
The dollar is trading at its strongest level in more than a month against a basket of major currencies, amid renewed concerns about the Chinese economy and an inflation surprise in the US. Data on Friday showed that US producer inflation grew by more than expected in July, as the cost of services rebounded at their fastest pace in nearly a year.
“Higher inflation gives the US Fed more impetus to hike interest rates, which, in turn, brightens the outlook for the dollar,” says Bianca Botes, director at Citadel Global.
A string of weak Chinese economic data has also unnerved the market, with a crisis at the Chinese property giant Country Garden compounding anxiety. The company has some 1,15 trillion yuan (R3 trillion) in debt, but missed bond payments earlier this month and has warned of large losses amid a slowdown in the local property market.
Trading in its Chinese bonds was suspended on Monday. Reuters also reports that two Chinese listed companies said this weekend that they had not received payment on maturing investment products from asset manager Zhongrong International Trust.
This has triggered concerns about potential corporate collapses in China in global markets. Usually, the rand bears the brunt of the “risk off” sentiment caused by these concerns because it is one of the most liquid emergency market currencies and can easily be sold off, says Louw. The rand is among the top 20 most traded currencies in the world. – News24.com.
Online Reporter