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Weak growth outlook keeps rand on back foot

The currency has weakened more than 3% versus the greenback since the start of the year.

Picture: Christa Eybers/EWN

JOHANNESBURG - The rand dipped to a new five-week low on Tuesday, with the currency struggling for momentum as a weak domestic economic outlook failed to provide a basis for optimism.

The rand touched R14.5970 per dollar in the session, its weakest since 12 December, before trimming losses to trade largely flat at R14.4810 at 1500 GMT. Stocks also fell.

The currency has weakened more than 3% versus the greenback since the start of the year.

“The market, as a whole, doesn’t seem like it holds much interest in currencies since the start of the year’s initial burst,” said Warrick Butler, executive for rand and emerging market spot trading at Standard Bank.

“The rand has underperformed other risky assets during this period but that ties into cyclical demand and the dire fundamental position of the country.”

Africa’s most industrialised economy is growing at a snail’s pace, with power supply interruptions from struggling state utility Eskom contributing to low business confidence.

The International Monetary Fund on Monday cut its South African growth forecasts to 0.8% this year and 1.0% in 2021, following recent downward revisions to the South African Reserve Bank’s forecasts.

President Cyril Ramaphosa has found it hard to push through much-needed reforms and rein in rapidly rising debt levels, putting the country’s last investment-grade credit rating from Moody’s at risk.

Stocks closed lower, with the Johannesburg Stock Exchange’s Top-40 Index ending the day down 1.53% at 51,835 points, while the broader all-share index fell 1.49% to 57,976 points.

The biggest losers of the day were platinum producers, which suffered as a steep surge in the price of palladium fell back.

“It’s all been riding on the back of that palladium price... it’s a very sentiment-driven market and people are probably thinking that that bubble has burst,” Greg Davies, trader at Cratos Capital, said, adding the markets were likely nervous and people were trying to take profits while they could.

Anglo American Platinum was down 9.3%, Impala Platinum fell 8.8% and Northam Platinum dropped 8.5%. Other peers followed close behind.

In fixed income, the yield on the benchmark 2026 bond was down a single basis point at 8.14%.