Weaker rand and high Brent crude stoke likelihood of further fuel price rises

The rand steadied at much weaker levels on Tuesday morning, while Brent crude extended gains after hitting the $80 level for the first time since October 2018, fuelling consumer inflation worries on the global level.

In a sharp about-turn, the rand has lost 3% against the dollar so far in September, while Brent crude is up 12% over the same period, making increases in fuel prices in SA more likely in the short term. The rand was flat at R14.95/$ in early trade, swinging from R14.12/$ as recently as September 14.

SA’s currency is reeling from the spike in US treasury yields and the market’s positioning for the Federal Reserve’s eventual reduction in its huge multibillion-dollar stimulus programme.

The yields on US 10-year treasury notes hovered at 1.5079% in early trade, the highest since June. 

Elsewhere, share markets were mixed in Asia, where China was the focal point in relation to how it manages the fallout of the liquidity crisis that has beset its second biggest property developer Evegrande.

In recent weeks, SA markets have also been roiled by turmoil in China, a key market for SA’s commodity exports. Having been battered by concerns over the Chinese government’s crackdown on technology companies, and then the crisis of liquidity in its property sector, the world’s No 2 economy is also facing an energy crisis.

“Although the Evergrande saga seems to have receded temporarily in the minds of financial markets this week, Evergrande’s stock is rallying today, China’s electricity crunch is gathering steam. Goldman Sachs and Nomura have downgraded their forecasts for China’s 2021 overnight, and it seems other forecasters will surely follow,” said Jeffrey Halley, senior market analyst, Asia Pacific.

“The news is most noticeable in the commodity space where SGX iron ore futures have unwound yesterday’s rally, slumping by nearly 7.0% this morning, although copper is proving remarkably resilient,” he said.

In other commodities, Brent crude was up 1% to $80 a barrel and platinum edged up 0.13% to 982.74oz.

mahlangua@businesslive.co.za