JOHANNESBURG - South Africa’s rand firmed early on Wednesday, finding relief from a surprise rate cut the U.S. central bank after a sharp selloff triggered by data showing the economy was in recession.
At 0715 GMT the rand was 0.36% firmer at 15.3600 per dollar, backing down from a five-session best of 15.2100 on Tuesday touched after U.S. Federal Reserve delivered an emergency 50 basis point lending rate cut just as local markets closed.
Before that the stats agency reported Africa’s most advanced economy had entered its second recession in two years in the final quarter of last year, shrinking by forecast-smashing 1.4% as a swathe of industries were hit by months of regular power outages.
The data stoked already bearish sentiment around the currency following last week’s budget where treasury chopped its 2020 growth forecast to 0.9% and announced estimates of a higher budget deficit - making a credit downgrade by Moody’s at month-end a near certainty.
“Within the space of a few minutes the rand had moved from 15.55 to 15.45 to 15.62 and down to 15.22. It is impossible to know what is going to happen with the world’s central banks in full panic mode,” said Standard Bank’s chief trader Warrick Butler.
While the Fed move set off some big inflows into emerging markets as the greenback to a knock to hover near five-month lows, early morning moves in risk assets were more muted as investors tried to digest the ongoing impact of the coronavirus.
“The actions taken by central banks shows their hand, and they are worried. We should be too, then. It’s expensive but I feel you have to remain defensive as far as owning risky assets is concerned,” Butler added in a note.
Bonds, which have also traded in a volatile range, were on the frontfoot, with the yield on the 10-year 2030 government issue down 9 basis points to 8.875%.
Stocks opened a touch weaker, with the Johannesburg Stock Exchange’s Top-40 index down 0.25% to 47,549 points.