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USD/S. African Rand R7.199

The South African economy, which has been soaring in the past few years, is braced for a short-term shock. For reasons including hot weather, heavy rain and fast industrial growth, the country was plunged last week into a power emergency.

National utility Eskom had to cut electricity at mines and smelters to balance the 4,000-megawatt generating deficit, and mining companies’ nosedived. On the back of a serious, albeit short-term, hit to the economy, the Rand has been falling. The power cuts could continue for some weeks, prompting miners and other companies to adjust their earnings forecasts on the downside, and the Rand to fall further. John Meyer, head of resources at investment bank Fairfax, says: ‘With the dollar falling, the South African Rand has a limit to the downside, but it could go down another few percentage points, due to falling sales of metals and coal.’

We think it’s safe to sell the South African Rand against the dollar in the short term, as more bad news about the South African economy feeds in.

ACTION: BUY USD/SAR • Target R7.63 • Stop loss R6.91

TIME TARGET: 4 WEEKS