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Rand hits three-week low

The local currency has lost 22 percent of its value against the US dollar this year.

The local currency has lost 22 percent of its value against the US dollar this year. Picture: Supplied.

JOHANNESBURG - The rand fell more than 1.2 percent on Tuesday to its weakest level against the dollar in three weeks after data showed the current account deficit widened more than expected in the third quarter.

The rand dipped as low as 10.41 to the dollar, the softest it has been since 12 November, according to Reuters data.

The rand earlier traded at 10.2980 just before the Reserve Bank said the current account shortfall rose to 6.8 percent of gross domestic product in the third quarter from a revised 5.9 percent in the second as export earnings failed to keep up with the higher price of imports.

Currency Strategist at Barclays Africa Michael Keenan says the trend is likely to worsen.

"It looks as though we're headed towards those four-and-a-half year lows that we reached back in August of this year, the 10.50 level."

He says "encouraging" news for the US that employment and housing figures have improved could do even more damage to South Africa.

"That news has brought about a fresh wave of fears surrounding US Federal Reserve tapering. It looks as though the market now is expecting the Fed to start tapering sooner than was expected. That's bad for emerging markets and currencies like the rand."

ETM market analyst Sean McCalgan shares Keenan's worries.

"The number is of some concern. It just reinforces the fact that we [will] see continuous bouts of rand underperformance over the medium to longer term."

He adds, "Today itself, the rand is one of the worst-performing emerging market currencies on that data primarily, and that's been the trend for a few weeks now. I think the risk is definitely towards more weakness than anything."

The rand has lost more than 22 percent of its value against the dollar this year - a heavy sell-off by investors who worry about persistently large deficits in the current account and national budget over the last five years.

The latest weak data underlined South Africa's position among the so-called "fragile five" currencies, including those of India, Turkey, Indonesia and Brazil.

Analysts say the five countries are most vulnerable to bouts of global risk aversion due to weak economic fundamentals.