Rand in free Fall showing no Resilience

The South African Rand was unable to capitalise on a broad-based US Dollar sell-off last week, ending the five daily sessions flat on aggregate after losses towards the end of the week unwound Monday and Tuesday’s gains.

Since then, however, the local unit has come under immense selling pressure this morning, breaking above the 16.00/US$ and almost breaking through the 19.00/EUR barrier for the first time since early 2016 amid global financial market chaos. Equities and other high-risk assets across the world have plummeted this morning as panic selling set in, with traders showing grave concern over the potential economic impact of the COVID-19 virus epidemic while simultaneously digesting a free-fall in oil prices after Saudi Arabia launched a price war with Russia.

Amid all the uncertainty, investors have flocked to asset havens, with the Japanese Yen and Swiss Franc the biggest winners in the foreign exchange market. Meanwhile, the US Dollar – traditionally also a haven currency – has sold off amid wagers for more drastic Fed rate cuts later this month.

It is worth noting that the Rand is one of the Emerging Market currencies that has sold off the hardest this morning, with only currencies exposed to oil prices coming under more pressure. While this in part reflects the depth of South Africa’s financial markets, it also highlights the Rand’s lack of resilience to external shocks due to SA’s economic imbalances and fiscal risks.

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