The rand is plummeting as global markets panic

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Saturday, the rand fell almost 3 percent to R15.39/$, its lowest level since early March. Local currency was under pressure as the dollar rose to its highest level in almost a year, putting downward pressure on it. US currency rose after the minutes from July’s Fed meeting were released on Wednesday, which suggested a willingness to begin reducing asset purchases before the end of 2021, according to the minutes.

“While markets have largely anticipated that the Fed would start looking at tapering its asset purchases, there has been little confirmation of when, up until now,” said Bianca Botes, director of Citadel Global. While more details of the exact nature of the tapering will likely only be discussed at the upcoming Jackson Hole Symposium, the minutes were sufficient to boost the dollar to a nine-month high.”

“A reduction in asset purchases usually boosts the dollar as there will be less cash injected into the financial system.” Due to Covid-19 outbreaks, investors’ risk appetite has reduced, strengthening the dollar as a safe haven for investors. Treasury ONE currency strategist André Cilliers thinks that global economic growth is essential for emerging markets to thrive, and that slowing growth will have a detrimental impact on countries like South Africa.

As a result of this week’s currency weakness, the rand has been the weakest emerging-market currency. In the immediate term, Cilliers believes that emerging markets will continue to be sluggish. Also weighing on the rand were sharp drops in commodity prices and the possibility of load shedding returning. As a result of the minutes, some Fed members expressed concern about inflation, which has fueled speculation that US interest rates may be raised sooner than originally anticipated. Holding the dollar is more enticing than other currencies because of higher interest rates.

A lower inflation rate in July in South Africa (4.6 percent, down from 4.9 percent a month earlier) may suggest that interest rates in the country will not be raised any time soon. Rands were trading at R20.92 to the pound, as well as R17.93 to the euro at mid-morning.