Thursday, 20th February 2020

South Africa's rand falls as investors weigh local, global risks

South Africa’s rand weakened on Monday as traders and investors continued to weigh heightened global growth risks against local uncertainty, while equities rose in line with global stock markets.

At 1555 GMT the rand was 0.82% weaker at 15.4150 per dollar, tracking weakness in most emerging markets currencies as trade worries linger.

The rand has fallen more than 7% since the beginning of August, pressured by the rising likelihood of a credit ratings downgrade by Moody’s linked to a massive, additional bailout for state power firm Eskom and signs of slower global growth.

The inversion of the U.S. Treasury bond yield curve - widely viewed as a sign of looming global recession - for the first time since 2007, also put pressure on the rand last week.

“Lingering concerns over a global recession will continue influencing market sentiment in the week ahead, with world equities, emerging markets and riskier currencies in the direct firing line,” Lukman Otunuga, a senior research analyst at FXTM said in a note. 

“Although treasury yields are recovering from record lows, the movements in bond markets will be monitored closely by investors.”

Locally, traders will also look to Wednesday’s release of local consumer price inflation for July, with the rand’s attraction as a carry yield target the key focus.

“While the rand is positioned to react on the inflation data, where the currency concludes the week will be influenced by external forces,” said Otunuga.

On the bourse, however, stocks rose to a three-month high. The Johannesburg Stock Exchange’s broader all-share index closed 0.95% up to 54,386 points, while the benchmark Top-40 index gained 1.01% to 48,647 points.

Leading the blue-chip index upwards was chemicals and energy company Sasol, which rose 3.29% to 273.71 rand, while miner Anglo American gained 3.07% to 322.85 rand. Pharmacist Clicks also increased 2.57% to 198.07 rand. 

Ryan Woods, trader at Independent Securities, said the stock market was lifted by factors including the prospect of government stimulus to stave off recession Germany.

China’s central bank also unveiled interest rate reforms expected to lower corporate borrowing costs, boosting hopes that major economies would seek to prop up stalling growth with fresh stimulus measures and lifting stock markets around the world.

Bonds weakened, with the yield on the benchmark paper due in 2026 adding 4.5 basis points to 8.43%.


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