South Africa's rand weakens against the dollar as investors flee from high risk assets on fears of a global recession. South Africa's rand weakened against the dollar on Friday knocked by investor flight from high risk assets on fears of a global recession.
The rand was trading at 11.47 against the dollar at 0630 GMT, about 4.3 percent weaker than its previous New York close of 10.99 on Thursday. It had hit a low of 11.50 earlier. Dealers said the rand would trade in wide ranges in the session with a weaker bias.
Analysts said while the rand may bounce back when calm returns to markets, political uncertainty and a wide current account deficit would weigh on the currency.
"The rand's performance here to date has been dismal. It is one of the worst performing currencies in the world at the moment but withstanding that, it is important to recognize that the rand has been sold off in an environment where most other risky assets has been sold off as well including that of emerging market currencies." said chief economist, Adenaan Hardien of Cadiz Financial Services Group. "
Again as one would expect in a rising interest rate cycle, new vehicle sales have been falling. The second hand car market is under major pressure. You can see it. There are certain, in the traditional areas, in the big cities where people would go to buy their cars and you can see lots of "for sale" signs and so on where businesses actually go bust so the vehicle market will remain weak for foreseeable future." he added.
The South African Reserve Bank (SARB) has also tightened monetary policy to clamp down on consumer demand, which has helped drive growth in South Africa over the last few years but has also been inflationary. In its latest financial stability review on Thursday (October 23), the bank said high household debt was a vulnerable point in the local financial system, although analysts say credit demand has cooled notably in response to higher rates.
"The world in the past were able to get out of systemic banking crisis and we will get out of this one also," said Jac Laubscher, an economist at Sanlam Group.
"It will perhaps take some time, it will be, it's not a six months story, it will take a couple of years perhaps to really get out of the hole." South Africa's current account deficit of 7.3 percent to GDP is also a worry as portfolio flows decline. Government bonds were also on the back foot as a weaker rand stoked inflation fears. The yield on the 2015 bond was up 12 basis points to 9.895 percent while the 2036 note yield rose by the same margin to 9.2 percent.