Cape Town – The rand on Monday remained subdued, as emerging market currencies, including the Turkish lira, tumbled due to the stronger US dollar.
The US dollar was supported by positive US economic data and news of a tentative debt ceiling agreement reached by President Joe Biden and Republican leader Kevin McCarthy, Business Report said.
The agreement raised the debt ceiling and averted a potential default, which could have had negative consequences for the global economy.
The rand has already depreciated about 7% against the US dollar this month, primarily due to South Africa’s energy crisis, the report said.
The domestic currency started the day trading at around R19.71 against the greenback, not far from a recent record low of R19.80/$1, before claiming some ground back to return to Friday’s close of R19.65/$1 by 4pm.
Other factors contributing to the rand’s weakness include the rebound of the US dollar since May and concerns about the government’s domestic and foreign policy coherence.
ALSO READ | Reserve Bank cautions on threat of sanctions
The South African Reserve Bank (SARB) has adopted a hawkish policy stance in response to these factors. However, some analysts believe that markets may have overreacted to the SARB’s statement about further rand weakness.
According to EWN, Chief economist at Econometrix Azar Jammine said it was worth keeping an eye on developments in the labour market in the US.
“On Friday we have the big announcement of the number of jobs created in the US in May. If it still reflects a very strong performance, then the dollar will strengthen and that would weaken the rand.
“On the other hand, if there are signs from the employment figures that the US economy is weakening significantly, you could well see the dollar falling and the rand gaining ground,” the report quoted Jammine as saying.
Economist Dale McKinley warned that it was inevitable for the rand to breach the R20 mark (20 rand to 1 US dollar) in the future, and it could potentially happen within the next week or so, the report said.
Follow African Insider on Facebook, Twitter and Instagram
Picture: Getty Images
For more African news, visit Africaninsider.com
Compiled by Betha Madhomu
