The rand fell to a four-month low yesterday as investors continued to worry about the global economic recovery amid the ongoing waves of Covid-19. Picture: Steve Buissinne/Pixabay
The rand fell to a four-month low yesterday as investors continued to worry about the global economic recovery amid the ongoing waves of Covid-19. Picture: Steve Buissinne/Pixabay

Rand at four-month low on worries over global economic recovery

By Siphelele Dludla Time of article published Jul 27, 2021

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THE RAND FELL to a four-month low yesterday as investors continued to worry about the global economic recovery amid the ongoing waves of Covid-19.

The rand galloped to the psychologically significant mark of R15 to the dollar, continuing last week's slippery slope, in spite of the easing of the lockdown restrictions, before recovering by 0.8 percent to R14.82 by just after 5pm.

The rand also ignored recent factors positive for the currency, such as the SA Reserve Bank (SARB) keeping interest rates on hold last week, as well as the ramping up of the vaccine roll-out by the government.

Analysts said dovish comments from the SARB last week continued to weigh on the rand, while President Cyril Ramaphosa's announcement of the move to level 3 failed to ignite buying sentiment towards the currency.

Investec chief economist Annabel Bishop said the negative bias continued in the markets, driven by riskaverse sentiment on the global spread of the Delta variant.

Bishop said that, from a global perspective, the rand was also afflicted by the marked upward pace in interest rates in some emerging markets as inflationary pressures rose.

“While South Africa has weak growth prospects, and higher rates do not seem appropriate, its stance is accommodative, and the hikes will make it less accommodative, but until they occur, will not aid the rand,” Bishop said.

Ramaphosa on Sunday announced a raft of measures to kickstart the economy. As part of easing the lockdown restrictions to level 3, he allowed interprovincial travel, and he announced plans to vaccinate the 18-to-34-year age cohort from September 1.

FXTM's senior research analyst, Lukman Otunuga, said the exchange rate might push beyond the psychological R15 mark amid rand weakness.

Otunuga said concerns were elevated over the riots fuelling a Delta-driven third wave of coronavirus infections. “Such fears continue to weigh on sentiment, and cloud the growth outlook of Africa's most industrialised economy,” he said.

“This is feeding rand bears, pressuring the local currency against the dollar and other major currencies.”

Despite the government revealing a new relief package to support businesses and individuals impacted by riots and restrictions, the rand remained depressed.

Citadel Global's director, Bianca Botes, said local factors were only partially responsible for movements in the rand. “Even as we exit lockdown level 4, the economic impact has been severe, and the South African growth prospects and employment prospects are rather dim, and this was also exacerbated by the riots,” she said.

Botes said low interest rates, when looking at money supply, were directly linked to the weaker currency.

“While a low interest rate will benefit the economic recovery, the fact that the rest of the globe is looking at increasing rates, coupled with risk aversion due to the Delta variant globally, is conducive for a weaker rand.”

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