Rand worst Performer amongst Emerging Markets

The Rand weakened considerably yesterday to end as the second worst performing Emerging Markets (EM) currency of the day.

The US Dollar profit-taking post payrolls was thus temporary and the strengthening trend of the dollar index is resuming. The effect of the new ECB stimulus (the Repo Rate was reduced to 0.05% – no spelling mistake!) has quickly been put aside as the Scottish independence vote and stronger hints by the US Federal Bank at raising rates sooner than anticipated generate some short-term risk aversion.

In addition to this, many EM commodity currencies were hard hit on the weaker than expected Chinese import growth data shown yesterday. The susceptibility of these EM currencies to this Chinese data indicates that it is not all about monetary stimulus when it comes to assessing their risk/return status. Markets have been increasingly frequent in the punishing of EMs for weakened underlying fundamentals. The softer Chinese import growth can be interpreted as a dual negative for the Rand as it implies the risk of less impetus behind a correction of still massive domestic trade deficits while also acting as a cap on headline growth.

Without a commensurate rise in external financing to plug the wide current account gap (the Second Quarter data is due for release today), the more negative the impact will be on the currency.

The sad scenario continues…

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