Further falls for struggling South African rand

Further falls for struggling South African rand

The currency has fallen to its weakest against the dollar in nearly two weeks as its tough year continues. Is it time for investors to move their money out?

Summary:

  • South Africa’s rand touched a session low of 14.3960 against the dollar last Friday, its weakest level for two weeks
  • More losses are expected ahead of a likely US Fed rate increase
  • After 12 months of record slides, many South African investors have already sought solace in overseas markets such as UK property in order to achieve high returns in a strong currency

After a year of record plummets and an outlook predicting further drops for 2016, when will South African investors’ patience run out with the struggling rand?

Last Friday saw the currency fall to its weakest since mid-November, when it touched a session low of 14.3960 against the dollar. Stocks ended over 1% lower, while government bonds also felt the impact of another slide with the yield on debt due next year climbing 4.5 points to 8.5%.

Analysts expect further losses in the coming weeks should a long-awaited US Fed rate increase come to fruition, or should ratings agencies publish negative reports on South Africa’s credit rating.

It’s been seven years since the US Federal Reserve dropped its benchmark interest rate close to zero in order to bolster America’s economy in the face of the global economic downturn. For several months officials from the Fed have said that a rise could happen before the end of the year, and it is looking increasingly likely that December will see an uplift in the rate.

This is a prospect that concerns many South African analysts given the rand’s notorious volatility against the dollar. In addition, the possibility of poor reviews from ratings agencies, including Fitch and Standard and Poor’s, over South Africa’s credit performance would also have implications.

Investors in the country have been reviewing their investment strategies this year, with many looking to high performing overseas markets to add a rand-hedging asset to their portfolio. UK property, with its high returns in a strong currency, has seen significant investment and interest from South African investors, helping cement Britain as the country’s largest booking centre for international property investment.

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