So the woes of the rand continue. This is one currency which you can never predict. From ‘lows’ of 9.30 to the greenback a week ago to the ‘highs’ of 10.13 on Tuesday. So the question is…what is causing all this volatility?

This volatility can be attributed to a number of factors. There are three main issues in my opinion:

The first issue is the worsening recession fears. The flight of capital which was experienced when the recession fears became real last year has continued, albeit at a slower pace. The rally on the JSE experienced in the earlier part of the year has somehow come to an abrupt end. This has put some pressure on the rand of late.

Secondly the business confidence rating in South Africa has reduced. What does this mean for the economy moving forward? Is South Africa, as many believe immune from the world recession? I am of the opinion that South Africa did not fully feel the first impact of the world economic crisis. Yes, there were no sub-prime issues that had an impact, but I believe that SA will be affected by what I term the second round effects of the credit crunch. What makes me say this? There is a host of issues that have taken place and are currently taking place which are going to have a negative impact on the SA economy. A number of businesses have closed down. One needs to look at the number of car dealerships that closed down last year due to high interest rates. The decline in commodity prices has not helped the mining sector as we continue to see scaling down and retrenchments in this sector. A significant number of retailers in the food and clothing sectors experienced lower volumes on a year on year comparative. This will ultimately lead to further retrenchments and slowing down of the economy. These are issues that are not being spoken about at all. Is it a case of the ostrich burying its head in the sand perhaps? With the slowing down of the economy, what are the alternatives to stimulate economic growth? Many perhaps expect Mr Mboweni to slash interest rates? That is another debate on its own.

The third issue is the Zuma case. Did you notice the impact on the rand after the judgement? Was it purely because of this judgement, or did the judgment coincide with negative economic data coming out of other economies, coupled by the decline in business confidence in the SA economy? I am of the opinion that the Zuma issue had very little impact on the weakening rand. One also has to bear in mind that around that time the US dollar was strengthening against most major currencies. It will be interesting to carry on watching the rand’s behaviour in these turbulent times.

Longcash

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