JOHANNESBURG - The rand weakened slightly yesterday while the dollar gained ground against other major currencies after the markets returned to risk aversion due to an increase in the rate of coronavirus deaths in the US and some European countries.
The US and France on Tuesday recorded the most coronavirus deaths in a single day, with more than 1800 and 1400 fatalities respectively, pushing investors into risk-off sentiment and opting to buy safer assets.
After the gains it made on Tuesday, the rand continued the trend yesterday by a further gain of 0.10percent to R18.19 against the dollar as the number of Covid-19 infections breached 1.4 million globally.
However, the losses were better than the R19.35 all-time low against the dollar on Monday.
Anchor Capital’s Nolan Wapenaar said sentiment towards emerging markets turned very negative, with currencies coming under renewed pressure.
Wapenaar said the country’s poor fiscal position; excessive debt burden; recent downgrades; and the impending expulsion from the World Government Bond Index made South Africa vulnerable for punishment.
“That explains why the rand has weakened more than most emerging currencies. The rand’s fortunes are closely tied to global sentiment at present, which can be extremely fickle,” Wapenaar said.
The rand’s weakness comes on the back of markets having been buoyed by a respite in new coronavirus cases earlier in the week, which triggered some gains for the euro and the pound against the greenback.
“However, today apprehension is back, following an increase in deaths in both Europe and the US, leading to fresh gains for the dollar as the American currency reverts to its safe haven role once again,” said ActivTrades’s Ricardo Evangelista.
The economic impact of the Covid-19 pandemic has pushed South Africa’s fiscal position further into the red, forcing the National Treasury to contemplate approaching the International Monetary Fund (IMF) for a debt facility.
Swiss private bank Lombard Odier’s chief economist, Samy Chaar, said the IMF was likely to change the way it operated to accommodate struggling countries. “I even think that at some point there will be some debt forgiveness for some Latin American or some African economies, and it would be justified,” Chaar said.
“This is a good opportunity to forgive some of the debt and allow these countries to access funding, as they don’t have the fiscal leeway to do so.”
Chaar said the IMF should waive some of its conditions to assist struggling countries and not demand structural reforms, because the economic impact of the Covid-19 pandemic was not of their own making.
“It is for the IMF to step in and basically provide the same kind of response that big economies were able to provide, and it shouldn’t be with conditionality or too strict because these countries are in it for nothing,” he said.