You are Here > Home > My Money > How will the recent looting affect the rand?

How will the recent looting affect the rand?

Jul 14, 2021

Bianca Botes, Director at Foreign Exchange Specialists Citadel Global, shares her insights on the recent protests and looting, and what it might mean for the value of the rand.

How will the recent looting affect the rand?One cannot deny the chaos that has ensued since the recent incarceration of former South African President Jacob Zuma, that has now made headlines across the globe.

On the one hand, many international investors consider his arrest as a positive development for democracy and a boost for business confidence, while others might regard the violent protests and looting as a deterrent.

A question many would like answered is: how does this affect the rand?

As South Africans, we often think that the local currency’s performance depends mainly on what’s going on within our borders, whether those events are economic or political in nature.

In reality, it is quite the opposite. Most of what drives the rand is based on global events and risk sentiment within the global financial markets.

Over the past few months, we have witnessed a significant recovery of the rand from its Covid-19-induced lows, which saw the currency reach R19.30 to the US dollar in April 2020.

However, this recovery is not due to events that have occurred within the country. Locally, South Africa still faces a dire economic trajectory, which was only worsened by the pandemic.

Looting will negatively impact the local economy

It might come as a surprise to many that the arrest of Zuma, although a positive sign for local sentiment, has had no significant impact on the rand.

In reality, Zuma’s arrest has been overshadowed by the real economic hurdles South Africa will continue to face, whether he remains behind bars or not, alongside global factors such as reflation, stimulus and global growth.

Despite this, there is a real concern around the effect that protests and looting will have on the economy.

The violence is likely to offset any positive inroads made into South Africa’s global reputation by Zuma’s imprisonment, and the damage to property as well as the job losses to follow, will certainly add to the fragility of the local economy.

Local tensions won’t dictate rand movement

While the national tension will bring negative sentiment, it will not be responsible for a dictation of the direction of the rand. It will merely be one of several factors contributing to it, which include Eskom’s electricity supply and the ongoing local economic turmoil due to the pandemic.

Although emerging-market currencies are trading softer, a risk premium has been built into the rand due to the unrest. As political tensions and riots have seen numerous economic hubs come to a standstill due to fear of looting, the rand will trade slightly softer against the dollar.

The following global factors will continue to drive the direction of the rand over the coming months:

  • Global growth and inflation
  • The rising number of Covid-19 cases and its effect on the global economic outlook
  • Additional fiscal stimulus expected from US President Joe Biden
  • Monetary policy action by central banks (including but not limited to the US Federal Reserve and the European Central Bank) in terms of interest rates and quantitative easing (asset purchases). Rising interest rates in the rest of the world will dampen the appeal of riskier emerging-market assets.

It is understandable that people are concerned about the consequences recent South African events could have on the rand, however, it’s important to remember that the global climate is currently just as fragile, and those global factors will be of more significance than recent events.

This article was based on a press release issued on behalf of Citadel Global.


Submit a Comment

Your email address will not be published. Required fields are marked *

Maya Fisher-French author of Money Questions Answered

Previous Articles

Video: Your money behaviour

Have you ever wondered how your money behaviour compares to that of your peers? Where do they save? What do they spend their money on and how much debt do they have? On this edition of Money Matters, we chat to Akash Dowra, Head of Client Insights at Discovery Bank,...

Nothing shocking about new retirement fund emigration rules

South Africans seem to live in constant fear of the government going after their savings. New tax rules for emigrants' retirement funds is just the latest development to fuel this anxiety. Andre Tuck, Senior Investment Consultant at 10X Investments, has a close look...

Listen: Juggling motherhood in the gig economy

Mapalo Makhu (@womanandfinance) rejoins Maya (@mayaonmoney) on the My Money, My Lifestyle podcast after taking a break to have her second child. She shares her experiences of having a child while having to meet client deadlines, and emphasises the importance of having...

Proposed additional exit tax leaves industry experts confused

Tax Consulting SA gives the lowdown on a new draft tax bill which essentially proposes an additional exit tax on retirement funds. It is not uncommon for National Treasury and the South African Revenue Services (SARS) to propose, and subsequently gazette, amendments...

Video: Five tax myths

Many employees don't understand the complex tax calculations made by their companies and they often question these deductions. According to tax specialist Tanya Tosen, there are five key things an employee needs to understand when it comes to their tax. Myth one:...

Video: Money is different for women

Did you know that 80% of women will manage their own finances during their lifetime, either because they have remained single, gotten divorced, or been widowed? And the reality is that money and finances are different for women. Why? We know from South African salary...

What does a financial plan look like?

I often write about the importance of having a financial plan – knowing your goals and how you are going to achieve them. But it is about more than just a financial plan. It is also about how you want to live your life and whether that plan reflects your values. I...

More households supporting unemployed family

For many working South Africans, the pressure of financially supporting friends and family is unrelenting. Most of us have either experienced a job loss or have a family member who lost an income due to the extended Covid-19 lockdown. It is not surprising then that...

Video: How to change your money habits

We know from studying history, that entire generations can share a similar money attitude or behaviour based on a major financial event that their generation experienced. People who grew up during the great depression of the 1930s, and those who grew up during World...

What is screen scraping and is it safe?

Screen scraping can be used by criminals to steal data, but financial services companies are increasingly making legitimate use of this too. Angelique Ruzicka investigates what the process entails and how consumers can protect themselves. Screen scraping can be hugely...

Pin It on Pinterest

Share This