South Africa’s rand crashes to a 2-month low

South Africa’s rand crashes to a 2-month low

Reports of further political uncertainty caused the already struggling rand to fall to its lowest level against the dollar since mid-March.

Summary:

  • On Monday the rand crashed to its lowest level against the dollar
  • The trough was triggered by reports that South Africa’s finance minister could be arrested
  • Poor economic performance continues to put further pressure on the currency, with many of the country’s investors deciding to move more of their money overseas

The volatility of South Africa’s rand and its economy has once again been underlined.

Following reports by Bloomberg that the country’s finance minister, Pravin Gordhan, could be arrested over “alleged irregularities at the nation’s revenue service”, the rand fell by 1.6% to 15.6623 per dollar on Monday (April 16th). This followed a fall of 2.1% just minutes earlier, and now it is at its lowest level against the greenback since mid-March.

Even though the reports merely raised the possibility of an arrest, the falls highlight the vulnerability the rand has amid political uncertainty in South Africa.

It follows months of poor performance triggered by a waning economic environment. South Africa has one of the top 20 worst global unemployment rates, with Gordhan admitting earlier this year that the country’s economy is “in crisis”.

Writing in a note to clients, Marc Chandler, Global Head of Currency Strategy at Brown Brothers Harriman, the largest private bank in the US, outlined:

“Due to a combination of weak fundamentals and rising political risk, the South African rand has underperformed this year. This should continue as both of these drivers are likely to intensify in the coming weeks.”

At the end of last year cash outflows leaving South Africa increased for a 16th consecutive quarter, meaning that people are moving money out of the country at their most sustained level since the mid-1990s.

In an attempt to escape the economic and political instability, large numbers of South African investors are investing in overseas markets such as UK property, a traditional rand-hedge with a proven track record of growing investor returns.

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