Rand holds firm in the face of Covid-19 surge and unemployment crisis

Financial services group, Peregrine, has cautioned of potential ‘shockwaves through the system’ due to South Africa’s rising unemployment rate.

And despite the gloomy outlook for the local economy, and a surge in Covid-19 infections, the rand has hel its ground against the dollar, daring to strengthen even.

Minister of Employment and Labour Thulas Nxesi has voiced his concern over South Africa’s dire situation when looking at the Unemployment Insurance Fund (UIF).

Peregrine noted that South Africa logged a 30% unemployment rate number for Q1 2020, before the impact of the national lockdown has even had a chance to reflect in the numbers.

It said that emerging from the lockdown, and amidst daily reports of businesses closing and job losses, South Africa is potentially set to face one of its worst-ever unemployment rates, which could mean that the UIF may even need to turn to National Treasury for a lifeline.

“With estimates placing unemployment between 41% and 54%, job losses could soon send shockwaves through the system.”

To date, around 1.5 million people are expected to lose their jobs during lockdown, and the UIF currently pays out between R3,500 and R6,000 per month.

Within the space of a month, the death toll of the coronavirus in South Africa has increased almost three-fold, likely as a result of the easing of lockdown measures and moving into Level 3.

Data supplied by the University of Pretoria SA indicates that the country currently has around a 1.6% death rate, with over 1.9 million tests having been conducted so far, Peregrine said.

Health minister Dr Zweli Mkhize has warned that hospitals are now starting to fill up quite dramatically, although the estimated amount of beds thought to have been needed at the peak (mid-August/September) were overestimated.

“Having said this, the pandemic is still to not be underestimated,” Peregrine said.

On Thursday (9 July), Dr Mkhize announced 238,339 total cases of coronavirus in South Africa, following a record 24-hour surge of 13,674 new cases.

The minister announced 129 new Covid-19 related deaths, taking the total to 3,720 casualties following a high of 192 deaths on Tuesday, while the minister pointed to 113,061 recoveries to date.

A total of two million tests have been conducted, with 56,170 tests conducted over the past 24 hours, Dr Mkhize said.

Despite South Africa’s unfavourable outlook, Bianca Botes, executive director at Peregrine Treasury Solutions, noted that the rand has held up well, having firmed against the dollar on Thursday thanks to a rally in riskier assets globally

“Emerging markets made additional gains yesterday supported by global appetite for risk, with the rand now setting its sights on testing a break below R16.80/$,” said Botes.

“However, with the rapidly changing dynamics, one should be careful not to allow greed to get the better of you, as markets flip flop between economic recovery optimism and fear of rising Covid-19 numbers,” she warned.

In a week that saw further stimulus packages being rolled out across various parts of the globe, gold took the opportunity to break above the $1,800 an ounce level, as investors seemingly grow more and more wary of the value of money in a world swimming in debt.

“US-China trade war tensions also started to take a personal turn, as the US took aim at foreign students studying on US shores, while the Covid-19 pandemic continues to cast a shadow over a global economy that yearns for revival,” Peregrine said.

Looking ahead, it said that investors should keep a close eye on the US over the next week, as slight volatility starts to creep back into US equity markets.

“Locally, Covid-19 continues to weigh heavily on the economy’s shoulders, as we head from base camp towards the expected peak of local infection rates around September,” it said.

The rand traded at the following levels against the major currencies in mid-morning trade on Friday:

  • Dollar/Rand: R16.86 (0.13%)
  • Pound/Rand: R21.24  (0.03%)
  • Euro/Rand: R19.04  (0.19%)

Read: How much money you need to be considered super rich in South Africa

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Rand holds firm in the face of Covid-19 surge and unemployment crisis