JOHANNESBURG - The rand weakened significantly yesterday and moved to test the R18 barrier against the dollar during morning trade on the failure of the US government to vote for the rescue bill which would have rallied the world markets.
The rand ran deeper into the severe down case, reaching R17.90 before pulling back to bid at R17.71 by 5pm.
The markets await implementation of the $4trillion (R70.2trillion) US’s emergency relief package for corporates to support the economy as it faces headwinds from the coronavirus (Covid-19).
Investec chief economist Annabel Bishop said there was great uncertainty in financial markets, and the longer it took to implement the US stimulus package, the more risk-off could elevate.
“Global markets worry that a global recession is likely. The global recession may well prove more severe than that of the global financial crisis, which is also worrying market players,” Bishop said.
“The rand is still likely to be volatile, with risks to the downside until the Covid-19 pandemic peaks globally, with shutdowns to economic activity underpinning risk-off, and so the threat of a further deterioration in the exchange rate.”
Last week was a volatile period in the markets, and the Covid-19 pandemic effects continue to drive risk aversion in markets as investors flee to cash, strengthening the dollar.
The JSE all share index closed 4.98percent weaker at 38267.21 points, while the Top40 index was 4.43percent lower at 34695.9 points.
Anchor Capital’s Nolan Wapenaar said the rand was more stressed than at the time of the global financial crisis in 2008 and Nenegate in December 2015.
Wapenaar said this was in line with that of the emerging market sell-off at the time of Argentina’s default on its external debt in 2002.
“In all instances, the rand recovered to its fair-value line - albeit on some of these occasions at a faster rate than on others,” Wapenaar said.