The South African currency and stock market remained under pressure yesterday as investors continued to push up their forecasts for higher US interest rates while the ongoing power crisis has deteriorated the outlook for South Africa’s economy.
The rand yesterday lost as much as 10 cents from the previous close, falling to R18.24 against the US dollar, close to its lowest since early November 2022.
Investors are worried that the US Federal Reserve could have to stay on its hawkish path for longer after a string of economic data releases revealed a resilience in the US economy.
The dollar is also likely to strengthen further as investors price-in the renewed hawkishness of the Federal Reserve as the likelihood of the central bank pausing on interest rate increases after March is much lower now than it had been only a few weeks ago.
TreasuryONE currency specialist Andre Cilliers said the rand remained under pressure from higher US interest rates and a strong dollar internationally, but there were also many local headwinds.
Foreign sales of local bonds are approaching the R40 billion mark for the month ahead of Friday’s decision on whether the country is grey-listed or not.
“Eskom has pushed load shedding up to stage 6, and there are fears of a move to stage 8 as further breakdowns occur. (Today’s) budget speech will hopefully shed some light on the government’s plans to stabilise the power utility,” Cilliers said.
“The rand is trading marginally softer after closing at R18.11 (on Monday) night. The rand lost some ground yesterday after having rallied strongly on Friday.”
At the same time, Eskom on Monday moved to allay fears of a grid collapse and stated that load shedding would be downgraded to Stage 4 on Thursday morning with a further drop to Stage 3 by the weekend.
Sustained power cuts implemented by Eskom of up to 8 hours a day to curb a total grid collapse continued to plague businesses and undermine economic growth while also fuelling inflation.
The South African Reserve Bank slashed its annual economic growth forecast to 0.3% from 1.1% last month, saying that the electricity crisis was costing the country as much as R899 million per day.
Old Mutual Wealth investment strategist Izak Odendaal yesterday said there were signs of rand weakness impacting some items in the goods basket, such as vehicles.
Odendaal said the goods inflation was largely influenced by global prices and the exchange rate while service inflation was much more local in nature.
“The rand has been the weakest of the highly traded currencies this year, with load shedding largely to blame. It has underperformed other commodity producing currencies by some margin,” Odendaal said.
Meanwhile, stocks on the JSE fell to their weakest in nearly two weeks as investors were bracing ahead of the release of the latest Federal Open Market Committee minutes.
The JSE All Share index fell as much as 1% to around 78 980 yesterday, tracking a negative sentiment across international markets.
Heavyweight tech stocks and resource-linked sectors were leading the losses, with Naspers falling 4.6% to R3 201 and Sasol plunging 5% to R280 per share, while financials advanced.
Locally, investors awaited the finance minister’s Budget Speech, which is likely to provide cues on the government’s policy trajectory.
BUSINESS REPORT