Bloodbath continues as plummeting rand weakens more than 2%


The rand reached a new all-time low against the US dollar on Thursday, as investors flocked to safe haven assets amid fears of a global recession caused by Covid-19, as well as the downgrade of South Africa's credit rating to "junk" by Moody's.  

Overnight, the currency weakened to a low of R18.27/$. It started Thursday's session at R18.22/$, but the bloodbath continued in the afternoon as it weakened more than 2% to R18.65/$.

It has now plunged more than 5% since Moody's lowered the country's sovereign credit rating to junk status on Friday.

The rand breached the R18/$ mark for the first time ever against the greenback in the early hours of Monday. And while the local unit initially seemed to hold off from weakening further, it plummeted on Wednesday after Wall Street lost more than 4% overnight. US president Donald Trump indicated that the death toll in the country would surge, Business Insider reported.

The rand is not the only emerging market currency feeling the heat. "The ZAR is not on its own and other emerging market currencies are also trading weaker. The ongoing worry about the Covid-19 pandemic and the extension of lockdowns in the US and the EU has market players very nervous," Wichard Cilliers of TreasuryONE told Fin24.

"The growth across the world will be very negatively impacted by the virus and thus are market players very nervous to take on emerging market risk."

On Thursday morning the rand's emerging market peers were also in the red against the dollar, with the Russian ruble down 1.4%, the Mexican peso trading 0.91% weaker and the Turkish lira 0.45% weaker. The ruble and peso have since strengthened.

But while the Covid-19 pandemic has caused widespread EM weakness, the rand has been the worst performing emerging market currency, noted Bianca Botes, executive director at Peregrine Treasury Solutions.

This, she said, was largely due to its greater levels of liquidity and the use of the rand as a proxy for emerging markets.

"According to data from MSCI, emerging markets have dropped as much as 25.45% year-to-date against the USD. By comparison, the rand has weakened 27.7% year-to-date against the dollar," she added.

Fears of global recession

Economist Jee-A van der Linde of NKC Africa Economics said that the rand's weakness could also be attributed to mounting fears of a global recession.

"[Wednesday] marked the sixth day since South Africa announced a 21-day lockdown period – we estimate that, outside China, economies in a severe or partial lockdown account for nearly 50% of global GDP – restricting business and spending," he said. While some regional lockdowns in China are expected to lift this month, they took a "heavy toll" on the world economy, he added.

Botes, meanwhile, doesn't see pressure on the rand letting up. "IMF and World Bank funding is rapidly becoming a reality, as Finance Minister Tito Mboweni has met with other African finance ministers via video conference to discuss the potential of this approach in assisting Africa to fight the coronavirus crisis," she noted.

We live in a world where facts and fiction get blurred
In times of uncertainty you need journalism you can trust. For only R75 per month, you have access to a world of in-depth analyses, investigative journalism, top opinions and a range of features. Journalism strengthens democracy. Invest in the future today.
Subscribe to News24
Rand - Dollar
Rand - Pound
Rand - Euro
Rand - Aus dollar
Rand - Yen
Brent Crude
Top 40
All Share
Resource 10
Industrial 25
Financial 15
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Voting Booth
Have you noticed a difference in the voices of women compared to men in virtual meetings?
Please select an option Oops! Something went wrong, please try again later.
Yes, there is a difference.
30% - 29 votes
No, I haven't noticed it.
61% - 59 votes
A bad internet connection worsens it.
9% - 9 votes