The rand weakened past 17 per dollar on Monday as the currency’s resilience is tested by fears of a US recession even as local fundamentals remain supportive.
History shows the rand tends to decline sharply when the world’s economic engine is in recession. Skipping the broad Covid-related slump in global markets in 2020, the US recessions of 2008/9 and 2001 knocked as much as 13% off the rand’s value. Based on Bloomberg scenario-planning tools, similar conditions this time round could see the rand weaken by about 12%.
“Even more concerned by recession fears could be the crowded positions in popular non-oil commodity names like SA,” Bank of America Corp strategists led by David Hauner wrote in a note to clients. “They won’t escape tightening financial conditions, recession fears and de-risking, even if the long-term fundamental picture is likely to remain supportive.”
While a global recession could weigh on oil prices, which would benefit energy importers like SA from a balance of payments point of view, that’s only half the story, according to Nedbank Group Ltd.
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