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The rand picks up but remains vulnerable to offshore developments

by , 01 September 2015

Last week saw the rand plummeting as worries over growth in China's economy hit global markets, but the local currency has managed to settle down this week.

But risks still remain that could send the rand weaker again.

Let's take a closer look at what's going on…

The rand has pulled back some of last week’s losses

Yesterday, the rand benefitted from some weakness in the dollar, reports Fin24. But the local currency is still “in the sell-off territory as heightened US rate hike concerns weakened appetite for risky assets”.

This comes the week after the rand hit 14 year lows. Have a look at the chart below showing the rand’s continued weakness over the past 12 months…

Chart of dollar/rand

Today also saw the release of data from China showing that its manufacturing sector is experiencing “its worst slump in several years,” says IOL. Chinese PMI came in at 49.7, highlighting the “continued downside risk in the world’s largest metals consumer”.

This marks the “first time the official PMI has fallen below 50 in six months,” notes BDLive.

The future still looks bleak for the rand

John Cairns of Rand Merchant Bank says that between what’s going on in China, the chance of interest rate hikes in the US and “renewed losses in the equities markets, suggests the pressure” could lead to further weakness, reports MoneyWeb. The situation in China means that the rand will be vulnerable to continued “risk aversion”.

NKC African Economics’ senior economist, Christie Viljoen, said that improvement is unlikely to improve for the rand in the build up to the “Fed meeting in a couple of weeks,” adds Fin24. The local currency is likely to “seesaw for quite a while”.

At time of writing, the rand was trading at R13.28 to the dollar, R15.05 to the euro and R20.43 to the pound.

On Friday, the US releases non-farm payrolls data. This could provide further hints as to what the Fed will do later in the month.

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The rand picks up but remains vulnerable to offshore developments
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