The South African rand fell sharply against the US dollar as markets opened in Johannesburg today, after five days of maintaining a range.
Much of the move was due to risk aversion as investors moved out of risky assets such as emerging market currencies and the US dollar gains on safe haven demand.
The South African currency has been under pressure since last week when Moody’s downgraded South Africa’s credit rating, followed by Standard and Poor’s. This led the rand to fall to its weakest level in over three –and- a -half years.
The rand was weighed down recently due to striking miners and violence which had plagued the country’s large mining sector, causing platinum and gold prices to fall. South Africa is one of the largest producers of gold.
Focus turns to a series of domestic data due this week, including a budget statement, which could give hints on the outlook of the economy for the medium term. Inflation figures for the month of September are also due. Thus ahead of these data, the currency is expected to remain subdued.
Meanwhile, South Africa’s widening trade deficit will also play a role in the rand’s performance.
This morning at 0643 GMT the rand was at 8.6765 against the US dollar which is 0.5 percent below the close of New York last night.