posted by 4x-news on Oct 9
Over the last two months, the South African Rand has plummeted, losing nearly 20% of its value against the US Dollar en route to a five-year low. It seems the currency has become the latest victim of the credit crisis and the resulting widespread risk aversion. The sudden exodus away from the carry trade, for example, has affected the Rand disproportionately, as many foreign investors had come to South Africa over the last few years to take advantage of the country’s 12% interest rate. Now, the country is facing a horrible crisis, and is worrying about its ability to finance its current account deficit, which already exceeds 7% of GDP. Accordingly, analysts predict the Rand will continue to drop. Bloomberg News reports:
“The portfolio flows we have seen over the past couple of years are going to dry up and we will not be able to fund the deficit with the portfolio flows.” The rand may slide to 9.20 rand by the end of the year…
In case you were asleep, US and global capital markets last week experienced unprecedented turmoil, followed by an unprecedented rebound. US stock market indices, for example, declined nearly 10% over the course of two days as it was revealed that three financial institutions (AIG, Merril Lynch, Lehman Brothers) were in deep trouble. Granted, the three scenarios managed to resolve themselves (government purchase, shotgun merger, bankruptcy), but the unthinkable had transpired. The following day, the markets promptly recouped their losses, as the earliest details of a sprawling US government bailout were announced. However, investors remain wary as they attempt to sort out the details. According to one piece of analysis, the forex implications are as follows:
