South Africa’s rand tumbled to a four-year low on Monday, joining a global sell-off in riskier assets as the coronavirus outbreak continued to spread globally and oil prices collapsed.
The rand was already on the back foot after ratings firm Moody’s, the last of the top three agencies to rank the country at investment level, cut it 2020 growth forecast on Friday to 0.4% from 0.7%, citing the impact of the coronavirus alongside long-standing fiscal frailties.
South Africa confirmed its first case of the virus on Thursday, and by the weekend officials had confirmed another two cases, but offshore risks to the rand looked set to drag the currency even lower.
At 0630 GMT, the rand was 3.82% weaker at 16.3000 per dollar, having plunged to 16.9850, its lowest since February 2016, earlier in the session.
The sell-off was exacerbated by low liquidity as well as the ongoing unwinding of carrying trades as downgrade risks heightened.
Against the euro, the rand was down 4.8% to 18.5622 and 3% softer versus the British pound at 21.2407. The local currency hit a record low against the Japanese yen, giving up more than 6%.
Volatility on the rand also spiked, with the one-month risk reversals, used to hedge against sharp price moves, climbing to a 7-month high.
Bonds also suffered despite indications that central banks in developed markets, including the U.S. Federal Reserve, would intervene further by cutting lending rates to shield their economies.
“While this should theoretically play into the hands of the rand as the interest rate differential grows, only time will tell whether this is sufficient to prevent a full-blown rotation out of EM assets,” ETM Analytics economists said in a note.
“We’ve been warning for some time that the imprudent fiscal environment and fundamental pressures that exist in South Africa suggest the rand will be amongst the most susceptible to an external shock, and this is exactly what appears to be materializing at the moment.”
The yield on the benchmark 2030 government issue was up 12.5 basis points to 9.18%.