South African rand sets new 3-year low as power woes sour mood

South African Rand coins are seen in this illustration picture taken October 28, 2020. REUTERS/Mike Hutchings/Illustration

By Tannur Anders

JOHANNESBURG (Reuters) -The South African rand struck a new three-year low in early trade on Thursday, under renewed selling pressure from the worst power cuts on record that experts say could get worse in the coming months.

Struggling state power utility Eskom is currently implementing scheduled blackouts lasting more than 10 hours a day for many households and businesses, with expectations for longer outages deeper into the southern hemisphere winter.

Investor sentiment towards the rand has soured badly this week, pushing the currency to its lowest level against the dollar since May 2020 on Wednesday and lower still on Thursday.

Read More: South African rand steady as markets cautious ahead of US CPI print

The rand is down almost 3% this week against the greenback, underperforming emerging market peers.

At 0630 GMT the rand was trading at 18.9400 to the U.S. dollar, about 0.4% weaker than its Wednesday close.

Rand Merchant Bank analysts said in a research note that it was easy to see a continued run on the rand as negative sentiment was now in the driving seat.

Andre Cilliers, a currency strategist at TreasuryONE, said: “We would need to see Eskom come out and give a detailed plan on how they plan to stop the electricity crisis. The market is worried about stagnation in the local economy, and investors do not want to invest in a country with a poor short-term outlook.”

Read More: Rand plunges to seven-week low

South Africa’s benchmark 2030 government bond was also weaker early on Thursday, the yield up 8 basis points to 10.640%.

President Cyril Ramaphosa is expected to answer questions from lawmakers on his government’s efforts to ease the crippling power shortage from 1200 GMT.

On the economic data front, March mining output will be released at 0930 GMT and March manufacturing production around 1100 GMT. RMB analysts said bad mining and manufacturing readings could give traders an excuse to sell the rand further.

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