Bad day for the rand as Wuhan coronavirus fears hit emerging markets

The rand is on track for its worst day in two weeks on Monday (27 January) as emerging markets continue to grapple with fears of the Wuhan coronavirus.

Bianca Botes, treasury partner at Peregrine Treasury Solutions, said that the local currency has come under pressure as investors try to calculate the economic impact of the coronavirus, while the death toll continues to rise.

China’s death toll from the coronavirus has climbed to at least 80 as the country extended the Lunar New Year holiday in an effort to contain an infection whose spread accelerated around the globe, Bloomberg reports.

“The rapid global spread of the coronavirus has seen various asset classes trade cautiously, with the majority of the currencies trading weaker relative to the USD, and this scenario is likely to continue,” said Nedbank analyst Reezwana Sumad in an investor note.

“The rand had previously made various attempts on the R14.30 level, but these were unsuccessful and of limited duration, and against the current global backdrop, the local unit is likely to remain on the back foot.”

Emerging market currencies and stocks have fallen broadly as the MSCI’s index for emerging market stocks shed 0.7%, while the currencies index fell 0.3%, reports Reuters.

“The Wuhan virus will of course hang like a shadow over financial markets this week,” said Jeffrey Halley, senior market analyst at OANDA.

“With asset markets pumped up on hopes of a global post-trade deal recovery and cheap central bank money, an unexpected growth shock could leave them particularly vulnerable to a potentially strong downward correction.”

The South African currency has come under strain in January as demand was hurt by weak growth outlook for the economy after the International Monetary Fund and South African Reserve Bank downgraded their growth predictions earlier this month.

At 11h50 on Monday, the rand was trading at the following levels against the major currencies:

  • Dollar/Rand: R14.55 (-1.02%)
  • Pound/Rand: R19.05 (-1.18%)
  • Euro/Rand: R16.03  (-0.8%)

Read: Petrol price, taxes and downgrade talk – what lies ahead for South Africa in February

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Bad day for the rand as Wuhan coronavirus fears hit emerging markets