The rand came under renewed pressure against foreign currencies on Wednesday, hitting R16.89 to the dollar, as markets continued to be knocked by the global coronavirus pandemic.
By 11h45 on Wednesday the rand was trading at R16.85 to the dollar, R20.29 to the pound and R18.55 to the euro. The currency has weakened by 2% since markets opened, and has shed dropped by 20% since the start of the year.
According to analysts, the weakness in the local currency is due to concerns over the fallout of the growing number of coronavirus cases in South Africa, exacerbated by the wait for data on consumer price inflation and retail sales, and tanking oil prices.
The Department of Health on Wednesday confirmed that the country now has 116 cases of the virus within its borders, 14 of which are from internal transmission, where patients did not have any history of international travel.
The 116 cases are up from 62 cases measured on Tuesday morning. Globally, cases of infection has hit 193,093, with deaths exceeding 7,800. No deaths have been recorded in South Africa.
The country has initiated a state of disaster over the virus, and restrictions on travel, movement and gatherings will have a massive knock-on effect in the economy, which is already struggling with its second technical recession in as many years, and record-high levels of unemployment.
Economists expect that the virus will entrench negative growth in the first and second quarters of the year, and likely lead to a contraction for the 2020 year overall.
The market is anticipating a rate cut to be announced on Thursday (19 March), but analysts are uncertain how big of a cut will come, following comments from the finance ministry that rate cuts are not the end-all solution for the economic pressures faced by the country.
According to Bloomberg analysis, in South Africa, a combination of downside surprises on inflation, the second recession in two years and continued power cuts supported the case for a 25 basis-point reduction even before the virus outbreak.
There’s growing expectation of the central bank cutting by more than that, with derivative markets pricing in 50 basis points.
Further dampening the rand’s prospects, according to Bloomberg analysts, is that investors are fleeing emerging markets in record numbers and piling into the safe-haven greenback, with two emergency interest-rate cuts this month by the US Federal Reserve doing nothing to diminish the dollar’s appeal.
“The surge in the dollar is another blow to emerging markets,” said Mitul Kotecha, senior emerging markets strategist at TD Securities in Singapore.
“The demand for the dollar has outweighed any hit to the US currency from sharply lower Fed rates. Emerging market assets will continue to struggle as investors steer clear of relatively risky assets and maintain a bias for safe havens.”
Oil’s continued fall
Oil prices continued to slide to the lowest level in almost 17 years as the coronavirus pandemic threatens to bring the global economy to a standstill, battering demand just as supply explodes, Bloomberg reported.
“I don’t think we have hit peak demand devastation yet,” said Stephen Innes, Asia Pacific market strategist at AxiCorp, who predicts oil may fall to $18-$20 a barrel.
The supply and demand shocks have hammered Wall Street’s outlook for oil. Goldman Sachs said consumption is down by 8 million barrels a day and cut its Brent forecast for the second quarter to $20 a barrel.
Standard Chartered predicted the low for the global benchmark crude will likely be well below $20 next quarter, while Mizuho Securities warned prices could go negative as Russia and Saudi Arabia flood the market, Bloomberg said.
Brent Crude traded at just below $30 per barrel on Wednesday.