Coronavirus continues to pound local currency and stocks

File image: IOL

File image: IOL

Published Apr 5, 2020

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JOHANNESBURG - The rand continued its downward spiral against the dollar on Friday with banking and retail stocks taking a particular hit as the coronavirus (Covid-19) pandemic accelerated its  fragile investor risk sentiment across the globe.

The currency fell to an all time low against the greenback, shedding XXX percent to RXXX while banking and retail shares plummeted as investors abandoned emerging markets for safe havens on fears of a global recession.

The number of coronavirus cases passed the 1 million mark on Thursday, pushing investors to fear that the global recession would last even longer than anticipated.

"King Dollar is still considered as a destination of safety despite the horrible economic data from the United States," said FXTM's Lukman Otunuga.

"There is also a sentiment that if things are this bad in the largest economy in the world, how bad are things across the globe." 

Financial market turmoil has fed off uncertainty ahead of the shutdown measures in most economies, as well as on the institution of these measures as many large and small corporates faced severe weakening of balance sheets.

However, news that the Organisation of Petroleum Exporting Countries (OPEC) was set to hold an emergency virtual meeting on Monday to stabilise global markets after US President Donald Trump had discussed production cuts in oil with Russia and the Saudis, boosted the oil price to above the $30 mark before resting on $28.23 due to the complete lack of demand.

The Dollar DXY index climbed to 100.243 as the greenback firmed on safe haven and liquidity demands.

The rand has weakened more than 30 percent against the dollar since the start of 2020 after starting the year at R14.01 to the greenback.

Over the last seven days, the rand weakened more than 6 percent after starting the week at R17.35 before weakening to a historic R18.09, remaining the poorest performing 

emerging markets currency.

Anchor Capital’s Nolan Wapenaar said the rand had been dealt a double blow by external shocks as two phenomena had taken place outside of South Africa.

“The first thing that is happening is that people are still feeling nervous about the coronavirus and the dollar is strengthening,” Wapenaar said.

“At the same time what we are seeing is that people are scared of emerging markets currencies, and bonds have all come under pressure. South Africa is taking a cue from currencies from countries like Turkey and Russia.”

Bonds also weakened, with the yield on the benchmark government issue due in 2030 rising to 11.79 percent.

Wapenaar said the SA Reserve Bank measures to buy some government debt and inject liquidity into the struggling financial markets would stabilise the bonds as the bond market has weakened.

“I still believe that the fair value of the rand is still R15 to the dollar. But the rand can sell off dramatically quickly and the assets will recover in time.”

BUSINESS REPORT 

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