The rand dropped sharply overnight and hit its lowest level in almost three years early on Wednesday, after hawkish comments from US Federal Reserve chairman Jerome Powell and South African data showed a sharp economic contraction.
At 8.30am, the rand traded at R18.60/US$, marginally weaker than its closing level on Tuesday and the lowest it has been since May 2020 in the first months of the Covid-19 pandemic.
The biggest driver was a warning from Powell the previous day that US interest rates might need to go up even faster and higher than expected to rein in inflation, said ETM Analytics in a research note.
His comments pushed the dollar to multi-month highs against most other major currencies on Wednesday.
The rand’s slide was compounded by GDP figures released on Tuesday that showed South Africa’s economy contracted more than expected in the fourth quarter of last year. If it contracts again in the current quarter, South Africa will be in a recession.
“A strong ZAR view relied heavily on the USD losing ground, but the chances of that happening in the near term have evaporated,” ETM said. — Nellie Peyton, (c) 2023 Reuters