Rand struggles as South Africa’s COVID-19 cases rise

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The Rand showed some recovery after foreign countries introduced stimulus policies which led to an inflow of liquidity into emerging markets, but it struggled to show persistent gains as the COVID-19 pandemic has continued to impact the Rand. Cyril Ramaphosa has announced that the virus outbreak is now a national emergency.

The Bank of England’s (BOE) Monetary Policy Committee voted to cut interest rates by 50 basis points from 0.75% to 0.25% in an emergency attempt to boost the economy. It was expected that the European Central Bank (ECB) would follow in the BOE’s footsteps, but surprisingly the ECB left interest rates unchanged and rather resorted to other means of stimulus.

Donald Trump has declared the outbreak a national emergency, opening the doors for $50 billion in emergency funds. The Federal Reserve has cut interest rates and has implemented a $700 billion stimulus programme. The foreign stimulus caused an inflow of liquidity into emerging markets, which allowed the Rand to recover to R16.04 to the Dollar on Friday. However, the Rand fell short of any persistent gains in strength. South Africa is a proxy for emerging markets which is why there is high volatility during these times of uncertainty.

During the emergency briefing on Sunday, Ramaphosa announced that the outbreak is now a national emergency and schools would be closed from Wednesday until the end of the Easter holidays. The decision was made to close 35 ports of entry and a travel ban on the most infected countries has been implemented. The Rand struggled throughout the day yesterday and showed a lot of volatility, at one point hitting R16.70 to the Dollar.

South Africa’s inflation rate for February will be released tomorrow. It is expected to drop from 4.5% to 4.4%. On Thursday, the South African Reserve Bank will decide whether interest rates will be cut. It is expected that rates will be cut by 25 basis points from 6.25% to 6.00%. The decision could have an impact on Moody’s rating review scheduled for the 27 March.

Market event calendar

Tuesday 17 March

• US retail sales (MoM) February: expected at 0.1%
• Japan’s balance of trade February: expected at ¥915 billion

Wednesday 18 March

• South Africa’s inflation rate (YoY) February: expected at 4.4%
• South Africa’s inflation rate (MoM) February: expected at 0.2%
• South Africa’s core inflation rate (YoY) February: expected at 0.2%
• South Africa’s retail figure (YoY) January: expected at 1.1%
• Eurozone’s balance of trade January: expected at €2.8 billion
• Eurozone’s inflation rate (YoY) February: expected at 1.2%
• Eurozone’s core inflation (YoY) February: expected at 1.2%
• Japan’s inflation rate (YoY) February: expected at 0.5%

Thursday 12 March

• Australia’s unemployment rate February: expected at 5.3%
• US current account Q4: expected at $-112 billion
• South Africa’s interest rate decision: expected at 6%

Friday 13 March

• China’s loan prime rate 1Y: expected at 3.95%