/ 16 October 2008

Rand collapses against world currencies

The rand slumped overnight, moving above the R10-a-dollar level, and was early on Thursday morning trading at its worst levels since August 2002.

The rand’s fall came in the wake of plummeting stock markets overnight and a surge in the dollar and Japanese yen.

At 9.56am, the rand was bid at R10,18 to the dollar, from R10,84 earlier in the morning and from a previous close of R10,67.

It was bid at R13,69 to the euro, from R14,49 earlier in the morning and a close of R14,37, and at R18,6815 against sterling, from an earlier R18,30.

Dow Jones Newswires reported that that the unwinding of risk appetite on Wednesday put the dollar and yen back on top.

The two lower-yielding currencies rose to intraday highs on Wednesday afternoon in New York as United States stocks declined, signalling the end of a brief rally for riskier assets.

When risk aversion overtakes markets, traders exit back into the currencies that funded those bets, giving the dollar and yen the role of safe haven.

Equity markets remain extremely nervous after US markets plunged overnight and the Asian stocks followed suit on Thursday morning.

Dow Jones reported that the 2008 stock-market crash resumed on a Black Wednesday with the Standard & Poor’s 500 suffering its biggest percentage loss since Black Monday, October 19 1987.

This time, everything from retail sales data and a warning from mining giant Rio Tinto to a statement from Federal Reserve Chairperson Ben Bernanke indicated the bank rescue would not prevent a potentially deep and widespread recession.

The broad S&P 500 index fell by 90,17, or 9,03%, to 907,84, its biggest percentage loss since the 20% decline on October 19 1987. The Dow Jones Industrial Average fell by 733,08 points, or 7,87%, to 8 577,91 for its biggest percentage loss since October 26 1987.

The Nikkei in Tokyo was down 11%.

RMB analysts said in their morning report that recession is the new cussword as the world continues to purge itself of equities with all major bourses in the red.

“Broad dollar strength is the theme as carry trades unwind at a rapid rate [and] financial system meltdown fears give way to the reality that the world is slipping into a recession,” they said.

The rand, after staging a small comeback below R9 to the dollar earlier this week, blew out overnight in late New York trade to test R10,70 in thin liquidity as the world dumped risky assets and emerging markets took the full brunt.

“In particular, emerging economies with high current-account deficits are feeling most of the pain, with Hungary, Turkey and ourselves members of this unfortunate club,” the analysts added.

Weak commodity fundamentals are adding to the unattractiveness of emerging-market currencies and stocks as demand for resources is set to decline, ultimately leading to lower growth and earnings figures.

“The rand needs a break of R10,05 in the short term or we risk an attempt on R11,20,” RMB said. — I-Net Bridge