eBusiness Weekly
Jitters about global growth caused the dollar to rise on Tuesday, sending the euro to its lowest in nearly three months.
The rand hit R19.26/$ early on Tuesday, its weakest level in weeks. The currency has lost 4 percent of its value over the past month, and is down 11 percent from a year ago. It still has some way to go to breach its previous record low of R19.80, which was triggered by the fall-out of the Lady R diplomatic crisis.
On Tuesday, Statistics SA confirmed that the economy grew by 0.6 percent in the second quarter, which was better than economists expected.
Normally, stronger-than-expected GDP growth would have bolstered the rand, says Casparus Treurnicht, portfolio manager at Gryphon Asset Management. This signals to the Reserve Bank that the damage of aggressive interest rate hikes may be less than feared, and could convince the monetary authority to keep rates higher for longer.
“But the dollar is bolstered by traders seeking a safe haven amid market concern about the impact of a deteriorating Chinese economy on world growth.”
South Africa, as a commodity exporter, would be hit particularly hard by a Chinese slowdown.
China’s Caixin services PMI was at levels last seen when swathes of the country were under lockdown, the latest in a series of weak data points from the world’s second largest economy, while data showed euro zone business activity decline faster than initially thought last month.
“The twin drivers of dollar strength of US higher yields and weaker growth conditions out of the US are still in fifth gear,” said Simon Harvey head of FX analysis at Monex Europe.
US treasuries fell on resuming trading after a holiday with the U.S. 10 year yield up 4.5 basis points at 4.2163 percent.
The China-exposed Australian dollar was the most affected, falling 1.46 percent to $0.6372 hurt too by the RBA’s latest policy update.
The central bank left its benchmark cash rate on hold at 4.1 percent for a third month in a row, and although it left the door open to future increases, markets are pricing only about a 30 percent chance that rates go higher from here.
“The RBA’s policy stance overall remains a weight on the Aussie, especially against the U.S. dollar, where the Fed funds rate seems highly likely to remain 125+ basis points above the RBA cash rate deep into 2024,” said Westpac analyst Sean Callow.
The dollar was strong across the board, climbing against China’s currency, and was last up 0.47 percent at 7.3096 against the yuan traded offshore and up nearly as much in onshore markets.
The greenback also rose 0.56 percent against the Canadian dollar to $1.3669, its highest since late March, and up 0.85 percent against the Swedish crown at 11.10, its highest since November 2022.
The yen was at around a one-week low and analysts see it grinding toward 150 per dollar unless there is a sharp change in the gap between Japanese yields, pegged near zero, and U.S. yields comfortably above 4%. A dollar last bought 146.95 yen.
A Japanese government bond auction on Tuesday was uneventful, leaving 10-year Japanese yields at 0.65 percent.
At midday, the rand was trading at R19.18/dollar.
