JOHANNESBURG – The rand slipped to a one-month low yesterday on the strength of the dollar as risk-off sentiment spooked financial markets with investors weighing in on the surge in Covid-19 cases in South Africa and fears that the country could face an extended lockdown.
The rand fell 0.29 percent to the greenback and weakened to R15.58 by 5pm yesterday, its lowest level since the beginning of the last month.
The domestic currency weakened to R15.66 to the dollar in early trade from R14.66 at the start of this year after President Cyril Ramaphosa announced he would address the nation yesterday.
Investec chief economist Annabel Bishop said the rand was likely to remain vulnerable for the rest of the year as the economy falters.
“The domestic currency will remain vulnerable to volatility, both this year and further out, given the high-risk status of its portfolio assets, with South Africa showing no progress towards reducing its debt quantum, while prospects for substantially faster GDP growth are seen as muted,” Bishop said.
The rand was particularly hard hit along with other higher risk emerging markets currencies yesterday, with the Argentine Peso hitting a low.
FXTM’s Lukman Otunuga said the rand was treated without mercy by G10 currencies yesterday on mounting fears of an extended lockdown in Africa’s most industrialised economy.
Otunuga said that an appreciating dollar and rising US Treasury yields dished out more pain to the emerging market currencies, with the rand falling almost 2 percent.
“As coronavirus cases surge in South Africa and doubts mount over its vaccine supplies, fears are rising over the economic outlook for 2021,” he said.
“Looking at the technical picture, South Africa’s rand has dropped to a seven-week low against the dollar. The rand could still fight back if the US$/ZAR is able to trade back below 15.28.”
The Democrats’ win for the control of the US Senate by a slim margin halted the dollar weakness trend.
Anchor Capital fund manager Nolan Wapenaar said the rand was weakened as investors were considering the impact of Covid-19, lockdowns, second waves and vaccines.
South Africa has secured at least 1.5 million doses of the AstraZeneca vaccine to inoculate the country’s health workers, but the government has been criticised for its late response.
Wapenaar said that there was a risk that the South African economy would be left behind when the rest of the world economies normalised in the second part of this year.
He said the weakened South African economy, which is currently without access to vaccines, was coupled with a desperate fiscal situation which means that the government’s ability to provide further support to the economy or the hungry is very limited.
“Overall the current situation is rather bleak. However, we expect that the government should make further progress in accessing vaccines and therefore our perspective is that this is more likely another speed bump for our country,” he said.
“Therefore we think that the rand will end 2021 at stronger levels than today, though the near-term prognosis is rather poor.”
Article written by: Siphelele Dludla
Photo credit: TransferWise