Rand exchange rate

[Dave A]

The Rand has been bid at around R9 to the US Dollar this morning. That's a slide of over R1 in two weeks. Just credit crunch jitters, or something more ominous?

[wynn]

Dammed Yankees are buying rands on the sly and driving the price up!

[Dave A]

Other way round I'd have thought. Too many Rand sellers and not enough buyers.

I admit I'm mystified.
The US bail-out plan looks on - the Rand slides.
The US bail-out plan is off - the Rand slides.

And not in little bits - it's big chunks.

[SilverNodashi]

does it perhaps have anything todo with the JSE "flaw" ?

[Graeme]

Rand slide

Overseas investors are selling SA shares/bonds and repatriating their capital.

Same thing is happening throughout the developing world, except China.

The bloodletting here has not been anywhere as severe as in the Developed World The National Credit Act saved us. The hammering in the Developed World is not even halfway through.

The weakening of the Rand will hugely assist our exporters. The Cape fruit farmers and the SA Wine Industry are extatic.

[Dave A]

It must be quite a flood. The Rand was holding quite well up until now despite our ongoing current account deficit and this year's capital exodus.

ps. What JSE flaw?

[Dave A]

Rand weakness may be with us for a while.

The rand is unlikely to stabilise in the next week or two, Kruger International economist Ulrich Joubert said on Wednesday after volatile trade.

It would not stabilise until the international markets did, and even then, would probably remain weak for some time, he said.

The rand dropped to R9,45 against the dollar on Wednesday, its worst level in six years, but recovered to R9,26 by 4pm.

South Africa had a well-developed financial system that made it easy for people to enter the financial markets, and unfortunately also easy to move out -- as was happening.

Right now, capital was flowing out of the local markets into the rest of the world

Joubert said another problem was that South Africa was importing too much and exporting too little -- a problem that had been cautioned against for some time already.

The country had depended on foreign investors to service the current-account deficit since 1994, attracting only a handful of long-term capital inflows and 90% of a short-term nature.

The risk had been that, if these investors caught fright because of the situation in Zimbabwe, for example, the money being attracted from offshore could flow out overnight -- as was being seen now.
full story from M&G here

[Dave A]

Trevor Manuel on the subject:

Manuel also said South Africa's banks were well-equipped to deal with the global financial crisis, but that they may be affected by restricted access to foreign exchange, Business Day said.

"If liquidity dries up, how do you finance cross-border deals -- be it in trade, investment, or links into the global payments system? Raising foreign exchange will be very tough in an illiquid market," he was quoted as saying.

Manuel said a weak rand -- which on Wednesday hit its lowest level against the dollar in almost seven years -- may boost the cost of South Africa's ambitious infrastructure plans and said spending on soccer stadiums and transport ahead of the 2010 Soccer World Cup should be contained.

"Building costs are a huge threat to what we want to do. I'm not too concerned, but we need to be watching it," he was quoted as saying.
full story from M&G here

Problems accessing foreign exchange - wasn't that the root of Zimbabwe's fuel supply problem?

[wynn]

Really, so long as the oil price falls faster than the rand and we get an interest rate cut or two, maybe we can weather this together!

[Morticia]

Better not to drop the interest rate now. Crazy as it may seem, but we need foreign investment BADLY and dropping rates will just chase potential investors away - seeing that we don't have much else on offer to lure investors into sunny Souf Efrika...

[IanF]

In my crystal ball, the milestone for the exchange rate will be next years confederations cup. If we can pull that off without a fiasco that will change the the sentiment towards us. This assuming our politics don't suffer from foot in mouth before then.

[Dave A]

Better not to drop the interest rate now. Crazy as it may seem, but we need foreign investment BADLY and dropping rates will just chase potential investors away

Holding the rate certainly steadied the Rand ship for now. But it's also suppressing the local economy.

Which is more important?

[Dave A]

I'm still rubbing my eyes in disbelief. WTF happened to our exchange rates yesterday, or was it last night?

[Graeme]

Could be the same thing that is trashing the New Zealand exchange rate - Northern hemisphere investors repatriating their capital.

[Dave A]

Some big overnight orders. Whoever it is, it looks like they're prepared to take a pasting.