South African Rand near the abyss

The rand is near the abyss. It has been under pressure for weeks, USD-ZAR already tested the threshold at 13.00. Like numerous other emerging markets currencies, the rand is suffering from the commodities price slide and the imminent US rate hike. Now one might think that a weak rand should support exports. 

However, it is not as easy as that. If there is a lack of external demand, cheaper export products will not help. Moreover, a weaker rand will drive inflation higher; in July, the rate already came in at 5%. Rate hikes by the SARB to fight inflation will not make the rand more attractive, but only stifle growth. 

In addition, and much more importantly, the country is highly dependent on foreign capital to finance its current-account deficit and deal with the investment backlog. 

"Foreign capital, however, is going to other destinations than South Africa, as yields for more secure investment opportunities (for example in the US) rise. Things are looking bad for the rand. The currency is expected to weaken further in the coming weeks", says Commerzbank.