I am often amused or slightly irritated - sometimes both - when I read the daily news about the rand. It is not that I don't care about the occasional ups and the seemingly more frequent downs of our currency, but the reasons given for its tremors are usually suspect to say the least. The president did X, employees strike in sector Y or something about sentiment Z... Common denominator is often that we think that small local upheaval has a lot do with how or currency fares, but the latest plunge - to a 14 year low - is sufficient evidence this isn't the case.
Of course I am not going to pretend that I know how it does work, if anybody did they would be making a lot of money speculating. And some people probably are.
But it's clear that most currencies bound on the waves of deliberate international speculation and random international trends. Keyword at the moment is of course China. The biggest consumer of raw materials and commodities in the world has been growing its economy by more than 7% in recent history, but those hosanna days are grinding to a halt now. The slowdown led to a currency devaluation to try and stimulate their export sector,with a domino affect in other countries as a result. On that point, one could wonder if a weak rand is such a bad thing in the long run. Aren't we supposed to be an exporting nation?
Yes, we are, but commodity prices are also falling because of China's slowdown and that means currencies that have a lot of exposure to commodities - like the rand - can expect to do badly. It also means our mining industry is in for more rough times and that's of course bad news.
Running away from currencies in developing markets, investors worldwide are reducing risk and looking at Japan or even the much maligned euro as safer bets - that is next to the US dollar of course. Analysts are also spotting a return to bonds and gold, all deemed a safer investment as 'dicey coins' like rand at the moment. Because because South Africa's credit balance is now improving again and the current deficit is getting smaller, some economists are actually predicting the rand to bounce back in the near future, but if our exporters would be applauding that remains to be seen.
If you are fuming by now and shouting 'Eskom' at the screen, yes, you are right. Of course there are local factors influencing the rand, like our meagre power supply, the stuff up with the latest visa regulations and the less-than-competitive manufacturing industry. What investors and currencies both like least is uncertainty and as long as politicians and decision makers keep fuelling that, internal issues will also keep the rand volatile.
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