S&P Global downgrades SA credit rating, what is in store for the ZAR?

On Wednesday night S&P Global downgraded the credit rating of South Africa due to the current load-shedding crisis that is damaging the economy of South Africa. As we can see today, the ZARs value has reached new record lows as the USDZAR has been trading well above the 18.4 level this week. Now that there is news of a downgrade of South Africa's credit rating, how should we expect the ZAR to behave over the next few days and weeks？

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Why has South Africa's credit rating been downgraded？

The biggest reason why the South African economy is facing uncertainty is because of the issue of electricity supply. The current government-owned electricity supplier (Eskom) has been failing to securely supply electricity for the country as they have been facing historic levels of load-shedding. The South African government has made several promises and efforts to remedy the situation, but the years of neglect of Eskom facilities have resulted in the failing infrastructure that is incapable of keeping up with the electricity supply.

The current solution of running the backup generators is running at the cost of tons of diesel, which is not sustainable as a result there seem to be worsening levels of Load shedding. This does not fare well for the businesses that need an electricity supply to function optimally, hence as the problem persists it gives a negative outlook for the economy of South Africa. This has led S&P Global to downgrade the credit rating of South Africa as investing in South African businesses that are reliant on an unstable electricity supply is sure to affect the profits of investments.

What does this mean for the ZAR？

A lower credit rating means there is less investment interest that will be focused on South Africa. This will mean that there will be potentially less economic activity for South Africa in the next few months until a solution is found concerning Eskom. The ZAR should continue to fall in value over the next couple of months as we monitor the situation with Eskom. This solution is bound to take quite some time to find as we are heading towards winter where there will be a higher demand for energy hence load shedding will likely take longer periods and hence affect the South African economy more, hence why I believe the ZAR is bound to stay on this trajectory