Rand Set for Worst Month Since 2013 as Downgrade Threat Looms

  • Uncertainty among investors may weigh on rand: Standard Bank
  • S&P to announce South African rating review outcome on June 3

The rand has weakened almost 10 percent this month as increased expectations that the Federal Reserve will raise rates boost the dollar and the threat of a downgrade of South Africa’s credit rating weighs on the currency.

The rand, the worst performer among major and emerging-market currencies in May, is set for its first monthly decline against the dollar since January and the biggest monthly drop since May 2013. Investors betting on South African government bonds have taken the largest loss among 31 emerging markets this month. Returns are down 12 percent, compared with an average drop of 3 percent for developing nations.

S&P Global ratings is due to publish its assessment of the country’s BBB- ranking on Friday, with four out of 13 analysts in a Bloomberg survey predicting that the country will be cut to sub-investment grade. The rest expect a downgrade in December. The rand is likely to bear the brunt of investor fallout from a rating cut, according to Standard Bank analysts Walter de Wet, Shireen Darmalingam and Penny Byrne.

“Concerns over a Fed hike, combined with local events such as South Africa’s credit reviews, may lead to renewed pressure on the rand,” the Standard Bank analysts said in a note on Monday. “The most depreciating pressure may well come from offshore investors hedging their rand exposure as uncertainty rises, resulting in rand depreciation, as was seen in December and January.”

By 5:40 p.m. in Johannesburg, the currency gained 0.5 percent to 15.7440 per dollar, paring its decline in May to 9.6 percent. Yields on the benchmark 2026 government bond dropped 7 basis points to 9.4 percent. Yields on the debt have risen 42 basis points in May, the biggest monthly climb this year.

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