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The rand recovers slightly after sliding to a 13-year low on Friday

by , 08 June 2015

Over the course of last week, pressure was building on the rand.

Traders had two main concerns. Firstly, would Fitch downgrade South Africa's credit rating? And how good was the US jobs report going to be?

They had to wait until Friday to get their answers. The rand weakened in the run up to the announcements. By that afternoon, the rand had slid through R12.70 to the dollar.

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

Fitch’s decision not to downgrade SA’s credit rating was rand positive

This morning, the rand has managed to claw back some of its huge losses from the end of last week, reports IOL. But with “weak domestic fundamentals,” the rand is likely to stay out of favour.

A major concern was whether Fitch was going to downgrade SA’s credit rating, adds IOL. Luckily for the rand, the ratings agency “held off downgrading Africa’s most advanced economy”.

But Fitch highlighted that economic growth in SA needs to pick up pace, says Fin24. It said “electricity supply constraints and external financing vulnerabilities” aren’t helping the country’s prospects.

The US jobs report sent the rand into a downwards spiral

The US also released its non-farm payrolls, which “exceeded economists’ expectations,” says Bloomberg. This sent the rand sharply weaker to levels not seen “in more than 13 years against the dollar”.

The local currency “slumped as much as 2.7% to R12.7105 per dollar,” adds Bloomberg.

Analyst at NKC African Economics, Bart Stemmet, said the positive jobs report fuelled speculation “of the US interest rate coming in much sooner, so the rand was just a victim of that,” reports MoneyWeb. Some traders believe a rate hike could happen in the world’s largest economy as soon as September.

This morning, data showed that “China’s exports slipped moderately in May, while imports tumbled,” notes BDLive. More disappointing news for the rand.

If the rand continues to languish around its current levels, chances of an interest rate hike in SA increase, head of strategic research at Nedbank Group, Mohammed Nalla, told Bloomberg.

At time of writing, the rand was trading at R12.56 to the dollar, R14.00 to the euro and R19.20 to the pound.

So tough times for the local currency as it battles against further weakness.

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The rand recovers slightly after sliding to a 13-year low on Friday
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