The rand tumbled nearly 3% to hit 16-month lows against the dollar on Wednesday as importers piled into the greenback, spooked by a recent trend of sharp declines that dealers said would continue.
At 3.20pm GMT, the rand was trading at 7.8720 to the dollar, 1.7% weaker than Tuesday’s New York close of 7.74 and having hit 7.9650, its weakest since May 2010.
With over 5% of losses so far this week, the rand was on track to register its biggest weekly decline since May 2009.
“Importers … are panicking and any order is moving the market aggressively,” said Ion de Vleeschauwer, dealer at Bidvest Bank.
The rand has broken through several key technical levels this week and will likely hit 8.00 to the dollar soon.
“We have hit 7.9650 already so I think 8.00 could come under pressure and not hold. Sentiment for the short term has turned very bearish,” said Judy Padayachee, a technical analyst at Absa Capital who sees it at 8.10/8.20 over the next few days.
“All my daily and weekly indicators are screaming the rand is oversold, but I have to ignore that and look at the price action, which shows it is under pressure and the trend is still weaker for now.”
The rand was also at its weakest levels since January 2010 against the euro and sterling.
Repo rate expected to remain unchanged
A reprieve is unlikely in the short term given investors are shunning risky positions in view of the deepening debt crisis in the eurozone.
The sharply weaker rand has created a monetary policy headache for the South African Reserve Bank as it tries to make a trade-off between rising inflation and weak growth.
But the central bank is still expected to keep its repo rate unchanged at 5.5% when it announces a decision on borrowing costs on Thursday.
Data showed earlier that annual headline inflation was steady at 5.3% in August but it is expected to rise gradually over the next few months and peak at 6.3% in the first quarter of 2012.
Government bonds firmed after the consumer price index data, which was softer than expected, with the yield on the 2015 bond down two basis points to 6.85% on the day and that on the 2026 issue falling by the same margin to 8.395%.
For now, money markets are still pricing in a small chance of a rate cut over the next few months, with the 6×9 FRA (forward rate agreement) rate at 5.21% on Wednesday after rising to 5.4% on Tuesday.
But analysts say the inflation outlook has deteriorated and instead of a rate cut, rates will be stable for longer.
SA stocks inch lower, gold miners climb
South African stocks ended a choppy session little changed on Wednesday as investors refrained from making large moves ahead of the outcome of a US Federal Reserve meeting.
But major gold miners climbed between 3% and 4% as a tumbling domestic currency provided support.
The rand’s fall of 3% during the session was a boost to gold miners whose product brings in dollars but whose domestic costs are mainly in rand.
The JSE Top-40 blue-chip index inched down 0.17% to 27 996.23 and the broader All-share index was 0.1% lower at 31 311.17.
“We are seeing a little bit of a pull back but I don’t think much can be read into that at the moment,” said Ferdi Heyneke, portfolio manager at Afrifocus Securities.
“If one looks a the bigger picture here there’s potentially still high levels than can still come through but that is going to depend on what comes out of the Fed’s meeting.”
The Federal Reserve’s two-day meeting ends later on Wednesday and is expected to result with a decision to stock up on longer-term treasury notes in a bid to boost a fading economic recovery.
With the US at risk of a new recession and the political climate in Washington making prospects for fiscal stimulus uncertain, the Fed has made it clear it is intent on taking steps to lift growth, even if only modest ones.
In Johannesburg, gold miners topped the gainers’ list with Harmony up 4.55% to R106 and rival Gold Fields rising 4.45% to R141.01.
On the flipside, retailers were among the worst performers after analysts said consumer demand was losing momentum even after official data showed monthly retail sales grew nearly 3%.
Clothing and high-end food merchant Woolworths skidded 4.97% to R36.87 and apparel retailer Truworths was off 2.41% at R75.14.
A total of 231-million shares, worth R132-billion changed hands, according to Thomson Reuters’ data, compared with 197-million the previous session. — Reuters