The rand broke through R17.00 to the dollar on Wednesday (23 September), as rising Covid-19 numbers and fears of a renewed lockdown in Europe continues to dampen investor sentiment.
However, it isn’t only coronavirus fears at play, with several other incidents also factoring into the off-risk.
“A combination of events, including a potential of renewed lockdowns in the EU, the international banking saga and Donald Trump’s continuous pushing for China to face consequences for the Covid-19 outbreak, gave rise to renewed caution in markets,” said Bianca Botes, Executive Director at Peregrine Treasury Solutions.
“We also saw the dollar gain momentum today as markets turn pessimistic regarding the potential for additional stimulus by the US Fed, further aiding emerging market weakness.”
The rand has suffered its deepest losses since mid-June on the back of a second wave of Covid-19 infections spreading through Europe.
Goldman Sachs forecasts however, as reported by Pound Sterling Live, point to the local unit recovering not only all of its recent losses, but also a larger portion of its 2020 loss by year end.
“The case for rand strength, in our view, depends not on domestic fundamentals, but instead on the currency’s high ‘beta’ to an encouraging global picture. Since mid-August, that case has begun to play out quickly,” the bank said.
“ZAR has significant room to retrace further: it scans as deeply undervalued on our metrics.”
However, risks persist in the lead up to the mid-term budget in October, where finance minister Tito Mboweni will have to convince markets that South Africa has a sustainable path forward through its post-Covid economic recovery – while balancing emerging issues like a multi-billion rand bailout for SAA.
US president Donald Trump has also stirred markets by calling on the United Nations to take action against China and hold it accountable for the pandemic.
The US president claimed that while China locked down its borders during the initial stages of the outbreak, it allowed travel out of the country, effectively infecting the rest of the world.
While analysts say the president’s appeal will likely find little support at the UN, it does risk exacerbating already rocky relations between the two nations, which have been embroiled in a long-running trade war.
Adding to market jitters are the revelation of a host of suspicious trades across the global banking system.
Earlier this week, leaked reports found that global banks moved large sums of allegedly illicit funds for nearly two decades, despite red flags about the origins of the money.
The consortium reported that the files contained information about more than $2 trillion worth of transactions between 1999 and 2017, and were flagged by internal compliance departments of financial institutions as suspicious.
Reuters said that the reports are not necessarily proof of wrongdoing, and the ICIJ reported documents were a tiny fraction of the reports filed with FinCEN.
Five global banks appeared most often in the documents – HSBC Holdings Plc, JPMorgan Chase & Co, Deutsche Bank AG, Standard Chartered Plc and Bank of New York Mellon Corp.
By 16h00 on Wednesday, the rand was trading at the following levels against major currencies:
- USD/ZAR: R17.03
- USD/EUR: R19.89
- USD/GBP: R21.70