Coronavirus panic is causing rand carnage – with further bloodshed expected

The rand breached R17.00 against the dollar on Wednesday (19 March), and has pushed through R17.50 in morning trade on Thursday as the coronavirus-driven sell-off of riskier assets continues aggressively, leaving carnage in its wake across all asset classes with investors scrambling to get their hands on cash.

“The rand lost even more ground in the overnight session, with little attention to technical levels,” said Bianca Botes, treasury partner at Peregrine Treasury Solutions, in a morning note.

The FTSE/JSE Africa All-Share Index slumped 7.2% to its lowest level since June 2013 on Wednesday, to 38,600 points.

Bloomberg reported that the dollar continues to make gains against every major developed and emerging market currencies in Asia trading.

“No asset class is safe right now from being sold to get your hands on dollars,” said Oriano Lizza, a sales trader at CMC Markets PLC in Singapore. “Normal market mechanics have disintegrated – I don’t see any stop to this for some time yet with liquidity crunch worries in markets. It’s a case of sell everything you can to get the mighty dollar, it’s the ultimate haven.”

Even gold appeared to be losing a battle against the greenback as it soared to a record on mounting concern there’ll be a global recession because of the pandemic, with investors preferring the haven offered by the world’s reserve currency against shelter in the precious metal.

Gold dropped as much as 1.4% to $1,465.34 an ounce.

“Be careful when looking for a bottom, as the market bloodshed caused by the pandemic does not seem to be over just yet,” said Botes.

The South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) will meet on Thursday over interest rates.

“We expect the SARB to cut rates by 50bps today in an effort to assist the economy in the wake of the Covid-19 outbreak. Other data due includes initial jobless claims from the US,” said Botes.

Of 21 economists in a Bloomberg survey, 11 predict a 50 basis-point reduction, while the balance expect the rate to be lowered by 25 basis points.

Forward-rate agreements show traders have switched from pricing in a less than 50% chance of a 25 basis-point cut three weeks ago to betting on a 100% chance that the central bank will cut by 50 basis points.

With an economy that slumped into a recession even before the coronavirus intensified, South Africa’s inflation-targeting central bank is facing calls to ease policy to support economic growth.

The Reserve Bank has repeatedly said that monetary policy alone cannot help South Africa’s economy and has a track record of being cautious when moving down – the last time it cut at consecutive meetings was in 2010, Bloomberg reported.

The rand lost further ground against the major currencies in morning trade on Thursday:

  • Dollar/Rand : R17.50  (2.71%)
  • Pound/Rand: R20.14  (1.25%)
  • Euro/Rand: R19.08 (2.49%)

Read: Rand hits over R17 to the dollar as it faces weakest close on record

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Coronavirus panic is causing rand carnage – with further bloodshed expected