The rand lost almost 1% against the US dollar after South Africa's current account deficit came in worse than expected and a lot worse that the previous quarter's print.
The SA Reserve Bank said on Thursday at the release of its Quarterly Bulletin that despite a slight narrowing of the shortfall on the services, income and current transfer account, the worsening of the trade balance resulted in a marked deterioration of the deficit on the current account of the balance of payments, to 4.8% of GDP in the first quarter of 2018.
The deficit is the highest since the 4.9% seen in the first quarter of 2016.
"South Africa's Q1 current account deficit prints at -4.8% of GDP, which is worse than the expected -3.9% and a lot worse than the previous number of -2.9% for the 4th quarter of 2017. The rand reacted negatively to the news, and it is currently trading at 13.7400," TreasuryONE said in a snap note shortly after the release at 10:00.
By 11:25 the local unit clawed back some losses, trading 0.71% weaker at R13.75 to the greenback. The rand was trading at R13.69/$ ahead of the release of the SARB's Quarterly Bulletin.
RMB economist Mpho Tsebe earlier warned that a "worse-than-expected outcome" would likely leave the rand weaker.
Referring to the ongoing trade war between the US and China, Peregrine's Bianca Botes commented: "In the world of politics it takes a single gesture by a person of stature to drive the markets in a different direction, so we will keep a close eye on the relationship between [US President Donald] Trump and [Chinese President] Xi Jinping," she said.
TreasuryONE's Andre Botha said apart from the current account deficit figures, the rand was still tracking the US dollar. "It could be a volatile day for the rand given the data release, as well as any trade tensions that may arise."
An interest rate hike decision by the Bank of England is also expected to move the currency.
Geopolitical risks persist
Meanwhile, Jameel Ahmad, global head of currency strategy and market research at FXTM, added that there was risk for more volatility in financial markets for the remainder of the week as Turkey would be holding its election over the weekend. Emerging market currencies, like the rand would likely be affected.
"The Turkish Lira has been in complete freefall in the lead up to the general election scheduled for 24 June, with the currency having lost 25% of its value this year.
"The rapid depreciation in the lira has also contributed to a wide range of different emerging market currencies taking a hit, as a result of investors becoming less attracted towards taking on risk," he said.
If the lira "hits the floor" following the election, then risk appetite for emerging markets may be "threatened" and emerging markets could be exposed to further weakness, depending on how the market reacts to the outcome, Ahmad explained.