South African Rand under pressure due to rising risk perception

USD-ZAR periodically exploded to over 14 yesterday only to correct again afterwards. The considerable turbulence on the FX market also put pressure on USD. The market is increasingly expecting the Fed to postpone its rate hike due to the turbulence in China and on the global stock markets. One might expect that the rand would be able to benefit from a development such as this, as FX market attention is mainly focusing on South Africa because the country records a considerable current account deficit. 

"Once cheap money supplies end it will become increasingly difficult to finance this deficit. So if Fed rate hikes are priced out this risk would initially diminish", says Commerzbank. 

However, the situation is not quite as easy as all that at present. As a result of developments in China risk perception in general has risen sharply. In times like these the currencies of high-risk countries usually come under pressure, and of course South Africa is one of these, due to the current account deficit amongst other reasons. That leaves the rand stuck between a rock and a hard place. It either remains under pressure because the markets worry about further turbulence in China or due to Fed rate hike speculation. Commerzbank suggests remaining long in USD-ZAR.