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Standard Bank Group
The SA Daily 04 June 2020

Rand strengthens to below R17.0/$

Shireen Darmalingam

  • EM currencies have largely underperformed since January, posting losses of over 20%. The South African rand, Brazilian real, Argentinian peso and Mexican peso have taken the biggest knocks. With the COVID-19 pandemic spreading relentlessly to emerging markets, EM currencies face further headwinds.
  • Brazil has had a record day of COVID-19 deaths as the virus rages on. This government has largely resisted imposing stringent social distancing. The Brazilian real has shed 20.4% since January; the Mexican peso has lost 13.4%, while the Argentine peso has shed 13.0%.
  • The rand, despite having lost 17.7% to the dollar this year due to both the pandemic and weak SA economic fundamentals, has gained 2.4% this past week and has firmed below R17.00/$ yesterday for the first time since March. It is now below its 50-day moving average (R18.24/$) and above its 100-day and 200-day moving averages (R16.81/$ and R15.75/$ respectively). These gains come on a more upbeat mood in global financial markets as many economies re-open.
  • The rand should firm further, especially as global financial market turmoil eases. However, its ultimate trajectory would depend on policy reforms to support higher growth as well as on government debt stabilisation.
  • We forecast the rand by year-end at R16.50/$. It is expected to average R16.90/$ in 20202. However, it remains vulnerable though to further shocks should the pandemic’s impact on the global economy be protracted.

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