Rand hits R15 to the dollar amid lockdown speculation and dollar strength

The South African rand moved past R15 to the dollar on Tuesday afternoon (5 January) amid increasing concerns and speculation that tighter lockdown restrictions were on the cards for the country, as well as dollar strength.

The local currency, which started the day trading at R14.66/dollar, has been partly impacted by the recovery of the dollar in the overnight session said Bianca Botes, executive director at Peregrine Treasury Solutions.

The strength of the dollar has been driven by the upcoming US senate elections in Georgia that will determine the fiscal stimulus approach for the US moving forward, she said.

However, local factors have also played a part in the weaker rand as the local currency was lower against all major developed and emerging market rivals on Tuesday.

This comes amid speculation that president Cyril Ramaphosa could announce an intention to return South Africa to a more stringent form of ‘lockdown’ after new coronavirus infections and deaths continued to surge this week.

“It is absolutely vital that SA does roll out vaccinations successfully, and as quickly as possible, as the country will attract little FDI without it, while lockdowns continue in attempts to control the spread of Covid-19 but damage economic activity, business and consumer confidence,” said Annabel Bishop, chief economist at Investec.

South Africa’s National Coronavirus Command Council (NCCC) will meet on Wednesday morning (6 January) – ahead of schedule – as the country continues to grapple with a second coronavirus wave.

The NCCC was initially only expected to meet next week Monday to review regulations around the adjusted level 3 lockdown, which are set to continue until at least 15 January.

Government spokesperson Phumla Williams confirmed that the meeting will now be convened at 09h00 on Wednesday, but indicated that the president may not necessarily address the nation following its conclusion.

Williams previously said that a meeting would not be called earlier than scheduled unless there was a change in South Africa’s Covid-19 situation.

More ground to lose?

In a note on Monday, Maarten Ackerman, chief economist and advisory partner at Citadel, warned that the some of the positivity around the local currency could be reversed when the spotlight is once again placed on the local fiscus.

The first ‘bump in the road’ will be the February Budget Speech, which is likely to remind investors of the country’s poor local economic fundamentals, he said.

“Eventually, as investors wake to South Africa’s economic reality, the rand will come under some pressure again. So, while the rand is currently enjoying the benefit of global tailwinds, it is likely to weaken during the course of the year.

“However, the extent of this weakening will ultimately depend on the government’s progress on fiscal reforms, without which we could see the local currency head north of R18/dollar.

At 15h45 on Tuesday (5 January) the rand was trading at the following levels again the major currencies:

• Dollar/Rand: R15.03 (+2.03%)
• Pound/Rand: R20.37  (+2.07%)
• Euro/Rand: R18.43  (2.47%)

Read: Ramaphosa calls urgent NCCC meeting as Covid cases continue to surge