The financial markets have not yet discounted all the new developments around the Covid-19 coronavirus which means that South Africans should expect more volatility over the next couple of weeks, says Efficient Group economist Dawie Roodt.
Speaking in an interview with Jacaranda FM, Roodt said that this was particularly true of the rand, which is often seen as a ‘barometer for international fear and uncertainty’ in the global economy.
“Whenever there is uncertainty internationally, we quite often find that the rand comes under pressure and we have seen that recently,” he said.
“I think most of the bad news is in the market already, but it is quite possible that the rand could lose more value over the next couple of days. My expectation is that we will see the rand consolidating and slightly improve over the coming months.”
Roodt said that while this is positive news for the rand, the local currency will have to contend with a potential blow as South Africa faces an announcement by ratings agency Moody’s at the end of the month.
He indicated that the local currency could weaken further should Moody’s announce that it is downgrading South Africa to junk status.
S&P was the first downgrade South Africa’s sovereign rating to sub-investment grade in 2017 (also called junk, or speculative grade), which was followed by Fitch in the same year. Only Moody’s has since held South Africa above this level.
Moody’s is scheduled to announce its assessment of South Africa on 27 March. A downgrade would leave the country without an investment-grade ranking for the first time in 25 years.
That would cause it to fall out of the FTSE World Government Bond Index, which could prompt a debt selloff and outflows of as much as $15 billion (R238 billion).
The rand showed signs on recovery on Tuesday morning, pulling back from levels above R16 to the dollar, trading at around R15.87 by 08h00.
On Monday, the rand reached highs last seen in January and February 2016.
According to Bianca Botes, Treasury Partner at Peregrine Treasury Solutions, the currency will likely continue to be on a bumpy path, operating on a wide range for the time-being.
However, a break below R15.85 will affirm a move stronger for the local unit.
At 08h35, the rand was trading at the following levels:
- ZAR/USD: R15.86 (+1.0%)
- ZAR/GBP: R20.68 (+1.8%)
- ZAR/EUR: R18.01 (+2.3%)