Steam rises at sunrise from the Lethabo power station, a coal-fired power station owned by state power utility Eskom near Sasolburg. Picture: REUTERS
Steam rises at sunrise from the Lethabo power station, a coal-fired power station owned by state power utility Eskom near Sasolburg. Picture: REUTERS

The rand is back on its perch as the world’s most volatile currency as investors price in the risk of a credit-rating downgrade while awaiting details of the government’s rescue plan for power utility Eskom.

The currency fell for a second day against the dollar on Thursday to levels last seen in early January, and bond yields rose to their highest in 2019. The rand’s three-month implied volatility climbed for a ninth day, overtaking the Turkish lira, as traders anticipate wider price swings.

Eskom cut electricity supplies for a fifth day on Thursday and warned its power-generation system remains “vulnerable”. 

The blackouts are “having a devastating impact on our economy and on the ordinary lives of people”, President Cyril Ramaphosa said in comments broadcast on eNCA.

Moody’s Investors Service has flagged the utility’s woes as credit-negative.

“We think there is more scope for a higher-risk premium to be priced in the currency,” said Kiran Kowshik, a London-based emerging-market currency strategist at UniCredit Bank.

“An increased risk of a rating downgrade should place the currency under pressure given that there is a very large foreign investors’ exposure in the local bond market,” Kowshik said.

UniCredit recommends buying dollar-rand via two-month forwards, targeting a move to R14.75/$, with a stop placed below R13.50.

The rand weakened 1.2% to R14.2335/$ by 5.45pm on Thursday, adding to Wednesday’s 2.15% slump. Yields on rand bonds due in December 2026 climbed three basis points to 8.94%, the highest on a closing basis since December 27.

Bond yields move inversely to their prices, and a higher yield reflects lower demand.

The currency’s three-month implied volatility rose to 19.22%, the highest of about 34 currencies tracked by Bloomberg. The rand is down 7.3% in February, the worst performance among emerging-market peers.

The FTSE/JSE all share index closed 0.03% down, its first decline in four days.

SA assets face a number of risks in the next few months. These include the budget announcement next week, the parliamentary debate about constitutional changes to allow land to be expropriated without compensation, as well as the national election in May.

Moody’s, the only major credit-rating company that still grades SA at an investment level, is reviewing its rating in March.

With Karl Gernetzky and Bloomberg