Mboniso Sigonyela
The rand’s weakness against the United States dollar is well documented, but the South African currency is also failing to hold its ground against other African currencies.
The rand has recorded new lows against the pound and the dollar since the terror attacks on the US on September 11. On Thursday the currency plumbed new depths, dropping as low as R8,97 to the dollar and R13,22 to the pound.
At this rate, it is possible that the South African currency could end the week below R9 to the dollar.
Several explanations are being given for the troubles. No analyst is able to identify internal factors for the currency’s massive losses.
Their suggestions range from the Zimbabwean land crisis and the South African government’s response to it, President Thabo Mbeki’s contradictory stance on HIV/Aids and the flight from uncertain emerging markets to safer havens.
Lately the US attacks have been cited as reasons why investors are removing money from emerging markets and investing in First World economies.
Until recently, many of the rand’s woes were ascribed to its exposure to a basket of international currencies, the biggest component of which is the euro. But, as Rand Merchant Bank chief investment strategist Wayne McCurrie observed on Wednesday, now that the euro is gaining, the rand’s weakness is harder to explain.
Surprisingly, some currencies in the Southern African Development Community (SADC) region have performed relatively well against the dollar in comparison to the rand.
According to Standard Bank’s SADC exchange-rate monitor, other currencies have had a better run against the dollar. The Malawian and Zambian kwacha gained almost 20% to the dollar between January and August, while the Seychelles rupee appreciated by 10,5% over the same period.
While the rand the most easily traded currency in Africa has been hammered over the past two years, the virtually non-existent Congo franc leads the way with losses exceeding 400% in the first nine months of this year. Before the US disaster the rand had lost about 11% to the dollar for the year.
The usually stable Botswana pula has been dragged lower by its exposure to the rand. The pula lost only 6% to the dollar in the first eight months of this year and Standard Bank blames the high weighting of the rand in the basket of currencies used to determine its value for some of that loss.
Absa’s Chris Hart says the rand is seen as a proxy for Africa. “It is tradeable and speculators love that.” He believes that most appreciations in Africa are not significant because they come from a very low base and are not backed by fundamentals. The Zambian quacha for instance may have risen from around 600 to 400 to the rand but moving your investments there would be a silly thing to do.”
That currency is fragile and is more prone to shocks than the rand, he says.
Economists believe that the pula is probably the most stable currency, if one considers fundamentals in the region. Because of Botswana’s diamond exports, there is a healthy current-account balance and foreign-reserve position, Hart says.
Although guarding the currency is generally regarded as one of the major tasks of a central banker, South African economists say they cannot fault Reserve Bank Governor Tito Mboweni.
“In any case, he has no reserves to interfere in the market,” says Hart. Moneyweb