The rand fell further to its weakest level on record on Friday as uncertainty surrounding accusations that SA provided Russia with weapons grew.
As of late Friday afternoon, a meeting between international relations minister Naledi Pandor and her US counterpart Antony Blinken was ongoing.
The local currency has dropped as much as 5.8% this week to a record worst level of R19.51/$ as trade ties with the US worth R400bn came under threat.
The rand also touched R21.3323 intraday against the euro — the weakest level on record. It weakened to an intraday R24.4586/£ — the worst level since 2016.
US ambassador to SA Reuben E Brigety II will face a démarche from the SA government to explain his allegations that Pretoria has aided Russia’s war efforts in Ukraine. In diplomacy, a démarche is issued from one government to another, with the aim of persuading or gathering information from the other government.
Brigety on Thursday accused SA of supplying ammunition to Russia in December 2022 when a Russian-owned cargo ship was docked in Simon’s Town, which is in contravention of SA’s non-aligned stance on the conflict between Russia and Ukraine.
“The political stakes are high, with trade deals and market access all now in question,” said RMB analysts. “This will add an additional layer of risk until the debate around this has cleared, and the rand should reflect that risk premium.”
According to TreasuryOne currency strategist Andre Cilliers, the rand remains at risk as markets weigh up possible repercussions “like cancelling of preferential trade agreements, and the worst-case scenario, possible sanctions.”
“If the US imposes sanctions on SA, the impact is almost impossible to estimate, but the net result will be negative,” added Cilliers.
At 5.57pm, the rand had weakened 0.8% to R19.3257/$, 0.25% to R20.9814/€ and 0.52% to R24.0899/£. The euro was 0.53% weaker at $1.0856.
Sentiment towards the local currency was already fragile amid fears that Eskom might be forced to implement even higher stages of load-shedding to preserve the integrity of the national grid.
Higher stages of blackouts will further undermine growth prospects with potential consequences on government revenue via low tax collections.
“Currently the idiosyncratic problems of SA are clearly dominating the price action in the rand,” said UBS analyst Tilmann Kolb. “With the alleged weapons delivery issue unfolding and the history of unexpected outages of electricity generating units, ZAR-specific news leading to further downside can’t be excluded.”
“That said, from a valuation perspective the rand already appeared undervalued before the latest bout of weakness, and the cheapness of the rand should act increasingly as an offset,” added Kolb.
In the stock market, the JSE rebounded from the previous session’s losses, closing firmer amid mixed global peers.
The all share index gained 1.73% to 78,330 points — lifted by all the major indices, while the top 40 added 1.85%.
At 5.50pm, the Dow Industrial average was 0.5% weaker, while markets were firmer in Europe.
With Thando Maeko
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