The rand hit R15.00 against the dollar on Friday (7 February), surrendering nearly a percent, as emerging markets slipped on news of the mounting death toll from the Wuhan coronavirus.
An index of emerging-market equities fell 0.6% as the death toll from the virus reached 636 in China, with most of the deaths reported in Hubei province, the epicentre of the outbreak, Reuters reports.
The rand extended its slide from the previous session after data showed business confidence in the country fell in January.
The currency has lagged its emerging market peers this year after the worst power cuts in a decade and choppy economic growth.
The Guardian reports that coronavirus infections inside China currently stand at 31,161, while global infections have passed 280 in 28 countries.
South Africa meanwhile, is on high alert after the Department of Health in KwaZulu-Natal said it was testing two people for the Wuhan coronavirus.
While the patients have been given the all-clear, there are concerns that it is only a matter of time before the country has its first case.
Ratings agency S&P also cut its forecast of China’s economic growth by 0.75 percentage points, saying the coronavirus will deliver a big blow to the country’s economy that will spill over to the rest of the world.
Rand at risk
A recent Reuters poll shows that the rand and other emerging markets are at significant risk of weakening in February if the Wuhan coronavirus epidemic spreads.
“The rand risks approaching, and exceeding, R16/dollar this quarter if South Africa looks increasingly likely to see a Moody’s downgrade, given that the domestic currency has already reached a low base on the back of the impact from the virus on risky assets,” said Annabel Bishop, chief economist at Investec said in a note earlier this week.
South Africa is due a credit review at the end of next month. Investors will automatically sell its bonds if Moody’s lowers its sovereign rating to junk.
The recent sell-off is a reminder of the rand’s vulnerability to adverse shocks (local or international) as the country’s fiscal and growth concerns remain in place, warned Nedbank analysts in an investor note late last week.
“We maintain our target of R16/dollar around mid-year, particularly after the Fed held its course at its Federal Open Market Committee meeting, while the SARB turned more dovish, in our view, at its last MPC meeting.”
This aligns with Absa’s views published in January, with the bank’s analysts predicting that the rand will likely to weaken back up to R15.16 against the dollar by the end of the first quarter and reach R16.13 by year-end.
The rand was trading at the following levels against the major currencies at 12h05 on Friday:
- R15.04/dollar (+0.80%)
- R19.46/pound (+0.83%)
- R16.49/euro (+0.58%)