Earlier today, the South African Rand (ZAR) weakened to an all-time low against the USD, falling for a fourth day in a row after a report earlier on Monday showed that South Africa’s trade deficit widened more than expected in October to the biggest shortfall in nine months.
The South African Reserve Bank then conveniently said the currency may depreciate further because the first interest rate increase by the Federal Reserve in almost a decade hasn’t fully been priced in by currency markets.
“The rand has been very sensitive to changing probabilities of the Fed hiking rates, suggesting that the first increase is not yet fully priced in,” the central bank said in a report released on Monday in the capital, Pretoria. “It is also unclear whether the rand will stabilize after liftoff, as attention shifts to the pace and timing of additional rate adjustments.”
It did just as suggested and the rand dropped as much as 0.6 percent to 14.4888 per dollar before paring losses to 14.4873 by 7:25 p.m. in Johannesburg. According to Bloomberg, that extended the rand’s decline this year to 20 percent, the most of 24 emerging-market currencies tracked by Bloomberg after the Colombian peso and Brazilian real.
Then, moments ago in the first official admission of defeat in the current currency war cycle - only one where the stakes are inverted as most countries do their best to push their currencies lower where in South Africa that is the default direction - South Africa announced there is little it can do to stem further losses.
S.AFRICA GOVERNOR KGANYAGO SAYS NO AMOUNT OF CENTRAL BANK INTERVENTION WOULD STEM MARKET-DRIVEN RAND MOVES.
As a result, expect the red arrow to move much higher and more to the right in the coming months.
Finally, for the CDS traders out there, it may be worth taking a quick look at South Africa's default risk which is now 42 basis points higher than for similarly rated Colombia, more expensive than Turkey’s and five basis points below that of Russia.