Rand creeps back above R20 to the pound mark

Economists say the impact of the devaluation of the yuan is still driving the currency down.

FILE: FNB economist Alex Smith said the devaluation of the Chinese currency has hit all emerging market currencies. Reinart Toerien/EWN.

JOHANNESBURG - The rand crept back above the R20,00 to the pound mark this afternoon, but economists say the impact of the devaluation of the Chinese currency, and concerns about South Africa's economy are still driving the currency down.

This morning the rand touched a historic low against the pound, at one point it would have cost you R20,04 to buy one pound.

First National Bank (FNB) economist Alex Smith said the devaluation of the Chinese currency has hit all emerging market currencies.

"The devaluation of the Chinese yuan implies that China will become more competitive in the global space and that people exporting to China will become a little bit less competitive so we could see more Chinese imports penetrate South Africa."

While Institute for Security Studies (ISS) head Jakkie Cilliers says our economy is really battling against the headwinds of a struggling global economy.

"Yet government has compounded those limitations and challenges by a lack of coherence in policy; and overlapping and contradictory policy positions."

Yesterday, President Jacob Zuma said our economy wasn't all 'doom and gloom' and that we were moving in the right direction.

Meanwhile, the currency also slumped to its lowest point against the dollar in over 14 years.

The economists say the weakness in the rand is being driven by both the devaluation of the Chinese currency and worries about the weakness of our economic fundamentals.

Smith says the rand's strength is now dependent on China and the United States (US).

"If China's economy holds up in the second half of the year, the currency should do okay. Also, not just whether the US hikes interest rates, we know that they will hike the interest rate, but more around the timing of that interest rate hike."

Cilliers says our government hasn't made the right policy decisions while trying to deal with global economic problems.

"Despite all the wastage that accompanies many of these investments, they will have an impact over time because South Africa is also well positioned next to [a] high growth rate region."

Last week 11,000 miners were told they could lose their jobs because of the crisis in that industry.