South African Rand Falling Fastest Among Emerging Market Currencies That Are Weakening Against US Dollar

The South African rand is the weakest among emerging market currencies that saw significant drops in value against the U.S. dollar this week. The rand reached the lowest value in four years as poor economic data and labor market tensions weighed on sentiment.

Data released Wednesday by South Africa's government showed that Africa's largest economy showed less-than-expected growth in the first quarter of 2013. Its manufacturing output contracted by close to 8 percent. The currency's new low, 10.13 rand per U.S. dollar, as of Friday at noon EDT, is part of a broader sell-off in 20 emerging market currencies tracked by Reuters.

"The weakness in the rand has been due in large part to domestic factors," Capital Economics analyst Shilan Shah said on news that the rand has fallen more than 9 percent against the dollar in the past month and more than 15 percent so far in 2013. One domestic factor that briefly stopped the bleeding was the end of a strike at an Anglo American Platinum mine, the world's top platinum producer.

Investor worries over monetary stimulus that may be curbed by the U.S. Federal Reserve are slowing the flow of money into emerging markets, causing currencies and asset values to decline. This week the Peruvian nuevo sol wiped out all of its gains since the start of 2012. The Turkish lira and Mexican peso each hit record lows against the U.S. dollar, as rising U.S. Treasury yields and improving U.S. economic data draw investors to the dollar.

In recent years, emerging market currencies have strengthened as a result of major central banks, including the Fed, freeing up assets to help smaller economies, according to the Wall Street Journal. However, now that the Fed is considering the drawdown phase of its bond buyback program, or quantitative easing, the emerging market currency slowdown appears imminent.

Emerging market central banks that were possibly considering rate cuts in the near future might have second thoughts now.