On Tuesday morning, the South African rand experienced a significant depreciation against the US dollar, reaching a new record low. The currency’s decline has been attributed to mounting concerns over the state of South Africa’s relationship with Russia.
According to News24, the exchange rate was R19.8391/$ in early trading. By mid-morning, the South African rand had recovered some of its previous losses and was trading around R19.80 against the US dollar.
Also read: Rand plummets to all-time low against the US dollar
A year ago, the rand traded at a much stronger level, below R15.30.
On Monday, the government announced that attendees of the BRICS ministerial meeting in Cape Town this week and the summit in Johannesburg later this year would be granted diplomatic immunity.
‘South Africa’s decision to provide diplomatic immunity to Russian President Vladimir Putin at the BRICS summit in August has unnerved traders,’ said Casparus Treurnicht, Gryphon Asset Management’s research analyst and portfolio manager.
This development occurs as the government explores its legal options in light of a potential visit by Putin to South Africa in August, coinciding with the issuance of an arrest warrant against him by the International Criminal Court (ICC).
The ICC warrant is in response to allegations of war crimes connected to the alleged abduction of children from Ukraine. As a signatory to the Rome Statute of the ICC, South Africa is obligated to take action regarding the arrest order. However, the government maintains that the declaration of immunity was merely a ‘routine’ procedure and unrelated to Putin.
According to Treurnicht, in addition to the announcement regarding diplomatic immunity, the South African Reserve Bank’s cautionary statement about the possible imposition of sanctions also had an impact on the market.
During Monday’s financial stability review, the bank issued a warning about the potential risk of sanctions stemming from South Africa’s position regarding Russia’s invasion of Ukraine. The bank expressed concerns that such sanctions could have severe repercussions for the country’s financial system.
Nolan Wapenaar, co-chief investment officer at Anchor Capital, acknowledged that these apprehensions contributed to the mounting pressure on the rand. Wapenaar noted that on Tuesday morning, the dollar exhibited a slight strengthening trend in comparison to other currencies.
‘The pain is both self-inflicted and external this morning,’ he told News24.
According to Bianca Botes, the director at Citadel Global, the anticipation of another round of interest rate hikes by the Federal Reserve has sparked an increase in demand for the dollar.
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