JOHANNESBURG - The rand weakened and lost its gains against the dollar yesterday as concerns grew that the possible introduction of localized Covid-19 lockdowns might undermine economic recovery.
The rand had weakened by 0.39 percent to R15.38 against the greenback by 3pm yesterday.
The National Coronavirus Command Council (NCCC) is tomorrow expected to announce a curfew, alcohol restrictions and reducing the number of people in public gatherings in areas deemed Covid-19 hotspots.
South Africa’s economy is expected to rebound to near pre-pandemic levels in the third quarter following the resumption of activity after growth shrunk by an annualized 51 percent in the second quarter on Covid-19 hard lockdown.
The rand has seen substantial gains this year from its historical weak point of R19.20 against the greenback in April, reaching R15.11 by November as most emerging market currencies experienced unprecedented weakness.
Anchor Capital’s Nolan Wapenaar said the rand was on the back foot mostly because the US dollar was on the front foot after the market had been trading with the expectation of a weaker dollar for a while.
Wapenaar said the currency and markets were still very focused on global developments and the domestic events were getting very little attention.
“The market isn’t really focusing on the possibility of a second lockdown in South Africa at this stage,” Wapenaar said.
“Our view is that South Africa has already had its major lockdown, and should it become necessary to increase restrictions, the increases will likely be relatively lite compared to the previous attempt to control the virus.
“The expectation of a vaccine and also the fact that it appears the mortality rates are lower in the second wave means that a sledge hammer approach of a harsh lockdown doesn’t make sense to us.”
The rand even ignored the news that Britain, one of South Africa’s key trading partners, had approved the Pfizer-BioNTech Covid-19 vaccine for use that will be rolled out from next week.
Britain had ordered 40 million doses of the Pfizer vaccine - enough for just under a third of the population as two shots of the jab are needed per person to gain immunity.
The emergency authorization of Pfizer’s vaccine marked a historic moment and may play a critical role in halting the Covid-19 outbreak.
FXTM’s Lukman Otunuga said that global risk sentiment remained muted despite the United Kingdom becoming the first country in the world to approve a Covid-19 vaccine.
“Such encouraging news should have bolstered global risk sentiment, sending equities across the globe higher,” he said.
“However, European markets are in the red while US futures have dipped.”
Otunuga said the repeated rand weakness could result in a move back towards R15.50 against the dollar ahead of the US jobs report on Friday.
“The lack of appetite for risk despite the good news continues to be reflected in the South African rand,” he said.
“On top of this, the local currency is dealing with uncertainty around the public wage dispute and the rising threat of a second coronavirus wave negatively impacting economic growth.”
BUSINESS REPORT