Four things to know about the South African rand

What?

The rand reached a four-year low against the dollar last week, falling over 2.6 per cent and closing at 9.572. It is down over six per cent since the beginning of May. The rand has been trending up against the dollar for the past couple of years.

Why?

Investors have been exiting the country due to declining growth prospects and concerns over spreading labour unrest. The economy of South Africa is threatened by inflation, low growth expectations and high and rising unemployment. Last week the central bank kept interest rates at five per cent, a 40-year low, to guard against inflation, even though growth prospects are diminishing. A weak rand increases the risk of inflation as import costs rise. Exports have been falling due to labour problems compounding the downward pressure on the rand.

What next?

The rand is close to potentially strong resistance of around 9.760 to the dollar, the area where the rand could start strengthening. Last week’s high of 9.692 could have been the top of the current rand weakness. However, if the rand weakens further, the next target would be around 10.450.

What to do?

A decline below 9.5104 will be the first sign that the rand is strengthening, first to around 9.361, then 9.306. The uptrend for the rand will be maintained as long as it stays above its long-term support at 8.826.

Bruce Powers Special to Gulf News