South African rand heads for punishing 6% loss

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A street money changer counts South African Rands in Harare, Zimbabwe, May 5, 2016. REUTERS/Philimon Bulawayo/File Photo

South Africa’s rand was on track for a 6% weekly drop against the dollar on Friday as severe power cuts and floods dented the country’s economic growth prospects.

Also weighing on the rand, US Federal Reserve Chair Jerome Powell said on Thursday that a half-point interest rate hike would be on the table next month, boosting the dollar and hurting emerging-market currencies.

At 0703 GMT, the rand traded at 15.5800 against the dollar, around 1.4% weaker than its previous close and down more than 6% on its closing level last week.

The crisis at state power utility Eskom and floods in KwaZulu-Natal province that caused at least 10 billion rand of infrastructure damage have reminded investors that Africa’s most industrialized economy faces significant constraints.

ETM Analytics said in a research note that another potential factor hurting the rand this week was Barclays selling a stake in South African bank Absa, as the proceeds were probably being converted into hard currency.

The research firm said this week’s steep depreciation had unwound much of the rand’s overvaluation, meaning the bearish impetus may begin to fade in upcoming trading sessions.

The South African government’s benchmark 2030 bond was also weaker in early deals, with the yield rising 7.5 basis points to 9.94%.

(Report by Reuters)

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