Rand walks tall as news of coronavirus treatment restores risk appetite
CAPE TOWN – The rand is walking tall after a report on Wednesday that a treatment for the coronavirus had been found made its way to the market, restoring risk appetite and subsequently positive sentiment towards emerging markets.
The Group-of-10 (G10) currencies (US dollar, euro, pound sterling, yen, Australian dollar, New Zealand dollar, Canadian dollar, Swiss franc, Norwegian krone, Swedish krona) bowed to the rand while Asian and other emerging market currencies extended losses.
This was despite South Africa’s Standard Bank Purchasing Manager Index (PMI) disappointing market expectations, according to ForexTime (FXTM) analysts. The IHS Markit South Africa PMI increased to 48.3 in January 2020 from the 47.6 in the previous month and below 49.4 forecasts.
FXTM analysts noted that with this marking the ninth consecutive month of contraction in private activity, this certainly raises concerns over the health of South Africa’s economy. “However, the rand is clearly more concerned with external drivers with positive developments in the coronavirus saga simulating appetite for the local currency.”
Treasury Partner at Peregrine Treasury Solutions Bianca Botes said the rand was responding positively to the news. At 3:30pm the domestic unit was trading at R14.71 to the greenback after strengthening to R14.67 after the news hit the market.
The rand gained about 0.5 percent against the dollar on Wednesday and more than 1 percent since the start of the week. If the market mood continues to improve, the Rand could trade towards R14.60 a dollar, according to FXTM. However, it is worth keeping in mind that concerns over the coronavirus outbreak remain a major market.
The rand took advantage of improving global risk sentiment although a heavy domestic calendar this month sets the scene for a volatile period ahead, according to NKC Research.
“In the upcoming State-of-the-Nation Address (Sona), prevailing economic conditions and recent political developments suggest the speech will not signal a seminal change in policy direction as one might have hoped for, but will rather be a mix-match of familiar themes, although perhaps dressed up in new clothes.
“The litmus test will, however, come with the budget address at the end of the month, which we anticipate will disappoint so as to force Moody’s hand into a cut to junk territory,” said NKC Research.
In the near-term investors will direct their attention towards the SACCI business confidence index for January. Business confidence has trended higher over the past few months with the index hitting six months high at 93.1 in December, said analysts. Buying sentiment towards the rand could receive another boost if the pending data exceeds forecast.