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Reasons why the Rand fell so low

Reasons why the Rand fell so low

Date: 2013-05-23
The rand has taken a severe beating against the world's major currencies this week and continues to drop.

According to Business Day, "Security guards fired rubber bullets at stone-throwing workers striking illegally at a South African chrome mine owned by German specialty chemicals group Lanxess, media reports said on Tuesday. Reuters reported that 10 miners were admitted to hospital, according to police spokesman Thulani Ngubane said, who said they were injured after security guards fired what are reported to be rubber bullets."

The South African Reserve Bank's (SARB) Leading Business Cycle Indicator released this morning was weaker than expected which implies there is added pressure on the SARB to cut interest rates at its meeting on Thursday.

If the SARB does cut rates then yields on South African bonds and assets will decline, which has caused the market to sell out of South African bond holdings in favour of other high-yielding assets, which in turn means the rand has weakened. The rand-selling may well continue into the American trading session and even the early (22.05.2013) Asian trading session.

"The leading indicator was barely positive on a monthly basis in February. If we see a monthly decline then that puts increased pressure on the monetary policy committee to cut rates on Thursday," a local foreign exchange dealer said. Foreigners were net sellers of R1.245bn of South African bonds including repo transactions on Monday after net sales of R279.55m of local bonds on Friday, data from the JSE shows. The South African Reserve Bank said last month that the composite leading business cycle indicator increased by 0.1% in the month of February compared with the preceding month."