Rand tumbles nearly 3% as Brazilian scandal rocks emerging markets
The rand was sharply weaker at midday on Thursday as fallout from a renewed Brazilian scandal affected emerging market sentiment.
Global trading was clearly risk-off as US Treasuries and the Japanese yen gained in safe-haven trade.
According to reports, Brazilian President Michel Temer tried to bribe officials involved in last year’s impeachment of former president Dilma Rousseff.
The allegations, based on apparent secret recordings, sent Brazil’s real currency and the Bovespa stock index sharply lower.
Brazil has attracted large capital inflows over the past few months as Temer embarked on economic reforms.
South African traders at first were at a loss to say what caused the sharp fall in the rand, but analysts at Nedbank Corporate and Investment Banking said it was "purportedly" related to the Brazilian happenings.
"The rand started to weaken in Eastern trading as the headlines regarding Brazilian political wrongdoing came to the fore," Nedbank said.
A trader at Global Trader247 said the dollar recovered somewhat against the euro.
"But that could not explain the sharp retraction in the rand," he said.
It was possible that the rand weakness also related to the Moody’s credit rating announcement, expected later in the month. Business Times last week reported that Moody’s officials were to meet National Treasury officials on Wednesday, but no further comment has been forthcoming.
Moody’s is expected to cut SA’s present currency rating by at least one notch.
At 11.49am the rand was at R13.5799 against the dollar, 2.84% weaker from the previous close of R13.2048.
The rand was at R15.0875 against the euro from R14.7307 and was at R17.6957 to the pound from R17.1158.
The euro was at $1.1112 from $1.1155.
The rand has held up relatively well against the dollar amid a slew of negative news over the past two months following S&P Global and Fitch’s downgrade of SA to junk in the first week of April.
The rand broke through R13/$ to R12.87/$ earlier in the month, but some analysts were sceptical about whether the strength — against the background of a softer dollar — would last.
On Tuesday the rand firmed to R13.04/$.