South Africa Exchange Rate June 2018

South Africa

South Africa: Emerging-market selloff pushes rand to six-month low in June

June 18, 2018

Since the outset of the year, the South African rand has taken some major hits as the emerging-market selloff continues battering the world’s currencies. On 15 June, the rand traded at 13.50 per U.S. dollar, shedding 7.2%—nearly a full rand—from the same day a month earlier. In a similar vein, since the beginning of the year, the rand has weakened 9.0% against the dollar amid capital flight toward higher U.S. bond yields. Compared with the same day a year earlier, however, the currency has shown more resilience, slipping only 4.9% against the greenback.

Driving the rand’s losses have been a bright U.S. economic outlook and the increasing plausibility of higher stateside interest rates this year as the Fed pursues its tightening cycle. Bond yields in the U.S. have been climbing on upbeat economic data at home, which has both prompted capital flight away from developing economies amid one of the longest U.S. expansions on record. Moreover, in South Africa, the SARB has made clear that it intends to pause any monetary tightening until the economic recovery firms—capping upside risk for the rand. Furthermore, the South African economy stumbled out of the gate in the first quarter, contracting 2.2% from a quarter earlier on an annualized basis—a near-decade low. Highlighting the significant challenges facing the economy, June’s first-quarter national accounts release prompted a further selloff of the rand as so-called “Ramaphoria”—the jump in economic sentiment ushered in on the appointment of Cyril Ramaphosa to the presidency in February—appeared to wear off.

Looking ahead, the rand is expected to recover somewhat by year-end as still-firm economic fundamentals and what’s left of “Ramaphoria” cushion further losses. Over the next couple years, however, the currency is expected to weaken against the dollar as political uncertainty ticks up in the run-up to the 2019 general elections. FocusEconomics analysts see the ZAR trading at 12.35 per USD at end-2018 and 12.67 per USD at end-2019.


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