What Happened to the Rand?

With the rapid decline of the Rand to a new four-year low of R10.33/$ over the past month, you may be wondering what has caused our currency to tumble to such new lows?

Both global and domestic factors are contributing to the volatility of the rand with the changes in the US economy putting commodity-driven currencies such as the Australian dollar and New Zealand dollar under pressure along with the ZAR as the Americans indicated that stimulus of their economy would gradually be reduced by scaling back the quantitative easing measures. Simply put, they will be printing less money which means that USDs will flow out of countries such as South Africa as the market exchanges ZAR for USDs.

Another global contributing factor was the slow-down in the economic growth of China, which imports South African commodities. Countries like South Africa and Australia are commodity-producing countries, and their currencies are taking a knock because they don’t export as much anymore.

There were also the domestic factors which added selling pressure on the Rand.

Our economy is doing badly as was evidenced by the disappointing weaker-than-expected economic growth and GDP data released last month, raising concerns about the long-term economic future and possible credit rating downgrades.

We’ve also got these issues in the mines… nobody wants to invest in a country that is so unstable. There are fears of continued and renewed labour strikes compounding negative sentiment toward South Africa, particularly from South Africans which filters through to international investors.

Add to that the notable ‘mis-speak’ by the nation’s President Jacob Zuma, who told the press that ‘only in undemocratic countries are there no strikes’. This jaw-dropping comment following months of bloody labour market unrest, caused investors to reel away from the Rand in disbelief.

Market participants had been expecting Zuma to outline proposals to deal with unrest between mine owners and their employees and perhaps some soothing words regarding his nation’s future growth prospects following the release of the disappointing Q1 GDP data. No such luck.

Now let’s just hope that the nation’s beloved Nelson Mandela makes a speedy recovery or I fear we may see fresh lows to our currency.