Rand at lowest level in four years as pandemonium hits markets
The oil price collapsed more than 30percent yesterday to a near 20-year low as tensions mounted on Russia’s falling out with Opec.
The rand also took a drubbing on the impact of the coronavirus (Covid-19) outbreak on the global economy, the reintroduction of Eskom’s power cuts, and the downward revision of South Africa’s growth forecast to 0.4percent from 0.7percent by ratings agency Moody’s.
TreasuryONE senior dealer Wichard Cilliers said the rand was not the only emerging market currency to be put under pressure by the oil-price war.
“The rand, which closed at R15.65 on Friday, has traded up near R16.96 levels in illiquid markets as panic set in and stop loss orders were triggered in emerging markets,” Cilliers said.
“The Mexican peso and Russian rouble are under even more pressure, as they are heavily linked to the oil market.”
The global markets sold off aggressively during the last week of February as investors raced for safe-haven assets due to uncertainty over the spread of Covid-19. But commodity-linked currencies yesterday experienced their worst sell-off since the virus outbreak.
FXTM’s Hussein Sayed said the collapse in the oil price had been felt across all asset classes.
“The Australian dollar tested its lowest level since March 2009 against the US dollar. The Norwegian krone fell to a three-and-a-half decade low of NKr9.67 to the dollar,” Sayed said.
“Meanwhile, the safe-haven yen is the best-performing currency, having jumped to its strongest level against the US dollar since 2016.”
Italy, the fastest-growing epicentre of Covid-19, has imposed draconian measures to contain the spread of Covid-19, with 16 million people now being quarantined.
ActivTrades senior analyst Ricardo Evangelista said the markets were looking at what was happening in Italy as a sign of what may be coming elsewhere in Europe on coronavirus spread.
“It is difficult to gauge what the actual impact of the disease and the measures to contain it will have on the global economy and, faced with growing uncertainty, investors are seeking refuge in traditional safe havens.
“It is also important to mention that the mood of risk aversion in the foreign exchange markets and across the board on all assets has been compounded by oil’s dramatic plunge, which has fallen in excess of 20 percent from Friday’s closing price.”
Investec chief economist Annabel Bishop said the country was likely to see a weak economic performance in the first quarter as it exports most of its commodities to Asia, most of its manufactured goods to Europe and most of its services to Africa.
Bishop said the oil war might, however, bring relief for the petrol price in South Africa, but the rand would still remain volatile. “The oil price collapse is currently indicating at least a 65c/litre cut in the petrol price in April, although this is some distance off,” Bishop said.