Rand’s volatility climbs to four-month high

Pressure is mounting on President Cyril Ramaphosa's government, with domestic uncertainty over Eskom helping to propel the rand to its most volatile in more than four months.

Domestic uncertainty over Eskom's debt and SA's credit-rating status is amplifying the effects of the US-China trade war, with the rand's 8.63% loss against the dollar marking it as the worst-performing emerging-market currency over the past 30 days.

It has taken only three weeks for the rand to move from R13.85/$ to R15.30/$ and there has not been a sign of any kind of correction yet, said Standard Bank currency dealer Warrick Butler in a note.

“For the most part, the domestic environment is the contributor to this ... we don’t need Trump to create an insecure environment,” Butler said.

Ramaphosa’s battles over his ANC election campaign funding was also a factor, Butler said.

The rand’s implied one-week volatility is the highest among currencies tracked by Bloomberg. At 18.45%, this is the highest volatility in the currency since March 29, when emerging-market currencies were put on the back foot by pre-election weakness in the Turkish lira.

At 12.40am the rand had weakened 1.11% to R15.4395/$, 1.06% to R17.2856/€ and 1.34% to R18.6548/£. The euro was flat at $1.1195.

The benchmark R186 government bond due in 2026 had weakened, with its yield rising eight basis points to 8.46%. Bond yields move inversely to bond prices.

Analysts said there was still space for further Reserve Bank interest-rate cuts in coming months, due to expectations that most global central banks, notably the US Federal Reserve, are moving towards easier monetary policy.

While another possible rate cut by the Bank in September could stimulate economic growth via consumption, it may end up weakening the rand through narrowing interest rate differentials, FXTM analyst Lukman Otunuga said.

International markets were thrown into turmoil last week due to threats of an escalation of the protracted trade conflict between the two largest economies, the latest development being US President Donald Trump’s comments on Friday that trade talks scheduled for September may be called off.

gernetzkyk@businesslive.co.za