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South Africa’s rand slid as much as 1.9 per cent in early European trading as a cut to the country’s credit rating by S&P weighed on the currency.
The rand was trading as low as 13.9450 to the dollar, the weakest level since January 11. The currency closed down 2 per cent on Monday after S&P cut its credit rating for South Africa from triple B minus to double B plus, or junk, citing increasing political risks. The rand is currently trading down 1.3 per cent at 13.8573 per dollar.
The currency has now fallen 6.8 per cent since South African President Jacob Zuma fired his finance minister on Thursday.
Brown Brothers Harriman said the ratings cut should “not come as a big surprise, as it has been long overdue”, and it expects Moody’s to follow suit with a ratings cut on Friday.
Citi takes the following view on S&P’s downgrade:
Some might expect this downgrade to embolden the opposition to Zuma’s leadership within his own party. But, this is not our base case scenario. We believe the party’s leadership remains biased towards an attempt to cap this crisis through internal discussion, rather than taking on Zuma. If this is indeed the case, we should expect a continuation in this gradual weakening trajectory in ZAR assets.