By Gary Howes

Above courtesy of BK Asset Management.

The South African Rand has been sent yet lower on global FX markets as global traders turn shy on emerging markets with Argentina offer fresh woes.

The South African Rand (ZAR) is under the hammer, as the below quotes show:

The pound sterling to South African Rand exchange rate is 0.46 pct higher on a day-to-day basis at 19.3998. This comes on a day GBP is also finding the going to be tough.The euro to South African Rand exchange rate is 1.16 pct higher at 15.2437.The US dollar to South African Rand exchange rate is 1.28 pct higher at 11.1388.Note: Our ZAR quotes are taken from the wholesale spot markets. Your bank will charge a spread at their discretion when passing on a retail rate. However, an independent FX provider is so well placed on the market that they are able to deliver you up to 5% more currency. Please learn more here.

Why is the South African Rand heading lower?

The Rand is lumped in the same Emerging Market (EM) as the likes of the Brazilian Real, Turkish Lira and Argentine Peso, all of which are being sold-off.

"USD-ZAR has been bid up more as an expression of an EM contagion trade based on the price action in USD-TRY," says Dr. Vasileios Gkionakis at UniCredit Bank.

Further pressuring the Rand lower say UniCredit is, "poor South-African C/A seasonality and general USD strength in view of tapering and a strong US recovery."

Why is the Argentine Peso so week?

"Although Argentina economic problems are unique, investors are starting to panic about other vulnerable spots like South Africa and Turkey," says Boris Schlossberg at BK Asset Management.

So what is going on in Argentina?

Schlossberg's colleague Kathy Lien gives a good run down of what is going wrong in Argentina:

"This week, the Turkish Lira plunged to a record low, the Argentine Peso suffered its largest one-day decline in more than a decade, the South African Rand dropped to its lowest level in 5 years, while the Brazilian Real fell to a 5 moth low. Emerging nations are having a very tough time fighting the outflows, particularly Argentina whose currency has lost more than 18% of its value since the beginning of the year (15% of which occurred this week).

"In fact, the central bank is scaling back intervention because they are running out of money to intervene - their foreign exchange reserves are dwindling. They can no longer afford to prop up their exchange rate in the same way as before because in 2013, their reserves dropped to their lowest level in 7 years.

"Turkey is still fighting the uphill battle, spending another $3.5 to $4 billion to shore up the lira yesterday but they have only $33 billion left in their FX reserves."

So while this mess plays out we can expect an under pressure ZAR in sympathy.

The outlook for the South African Rand depends on the Current Account

All is not lost for the Rand though, there could be some respite in the form of some positive data next week.

Matthew Sharratt at Bank of America Merrill Lynch Global Research says:

"We continue to look forward to a dramatic improvement in the CA deficit in 2014, which will likely support the beleaguered Rand, in our view. The trade deficit is likely to record a +R7.1bn surplus in December (data due on January 31). We now expect the CA deficit to narrow to -5.2% of GDP in 4Q already (previously, -5.6%), much

better than consensus at 6.1%. We now target a low point of -3.9% in 2Q 2014.

"The December trade data will be released next Friday and, outside of the December CPI release and this Wednesday’s SARB announcement, promises to be a highlight of the month, in our view. Seasonal effects paint a promising picture for the December release."

However, as is often the case in economics, the weakness of the South African Rand could soon whittle away any advantage that good Current Account figures may afford, precisely because a weak Rand will make the CA worse, and so the circle goes!

"The biggest risk is a sustained breach of USDZAR above 11.00. As we highlighted in October, relative stability in Rand is required in order to allow the J-curve trade adjustment to the currency weakness. The current volatility in the Rand may further boost the value of imports, particularly oil, and delay fundamental adjustment," says Matthew Sharratt.

For us though the big picture of global investor sentiment and flow is what will be of importance for the Rand, and unfortunately at present we see further ZAR weakness on the horizon.