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Rand rout: Currency cracks 13-month low above 16/dlr on new Covid variant jitters

A selection of 100 and 200 South African rand banknotes, featuring an image of former South African President Nelson Mandela, stand in this arranged photograph in London, U.K., on Thursday, Dec. 13, 2018. (Photo: Simon Dawson/Bloomberg)

The South African rand slid more than 1% in overnight trade to vault past the 16/dlr mark, its weakest levels in 13 months, on news of the emergence of a new Covid variant in the country. Among other things this hammers hopes for a tourist recovery, with South Africa back on the UK red list.

For South Africa’s recovering tourist sector, the timing of the emergence of a new coronavirus variant could hardly have been worse. This was reflected in the pounding the rand took overnight as prospects of a holiday shot of hard currency into the veins of the economy from overseas tourists evaporated as South Africa was again red-listed by London. 

The rand in overnight trade fell below 16/dlr, a psychological level that could spell a further retreat in the coming days if lockdown restrictions harden. In that case, forecasts of more than 5% economic growth for South Africa this year will also be revised downward.

The currency had actually been making gains on Thursday before it was infected by news of the new variant. 

“The South African currency lost the gains made earlier in the day during the latter stages of the European session. At close of local trade (Thursday), ZAR quoted 0.04% stronger at R15.87/$, after trading in range of R15.82/$ – R15.91/$,” Greg Struyweg of Oxford Economics Africa said in a morning note. “ZAR traded above R16/$ overnight, as a new variant of coronavirus has been confirmed locally.” 

A softer rand is not ill tidings for all sectors of the economy. Shares in Harmony Gold shot up more than 7% on Friday morning as a weaker domestic currency lifted the rand price of gold, which is traded in dollars, a scenario that flows straight to the company’s bottom line. 

And not all is doom and gloom for the rand, which has a rich history of volatility. 

“I think this is a knee-jerk reaction,” Mike Schussler of economists.co.za told Business Maverick

“Commodity prices are supportive and we have a very healthy current account balance.”

Still, for the moment, things are fragile. Renewed lockdown restrictions, among other things, would certainly not be supportive of the currency. Right now the rand’s performance is a sign of the uncertain weeks that lie ahead. DM/BM

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