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The rand broke R17.00 per dollar on Wednesday (September 23), as rising Covid-19 numbers and fears of a new lockdown in Europe continue to hold back investor confidence.
However, not only are coronavirus fears at stake, but several other incidents also play a role in risk.
“A combination of events, including a potential for renewed closures in the EU, the international banking saga, and Donald Trump’s continued push for China to deal with the consequences of the Covid-19 outbreak, led to renewed caution in the markets, “said Bianca Botes. Executive Director of Peregrine Treasury Solutions.
“We also saw the dollar gain momentum today as markets turn pessimistic about the potential for additional stimulus from the US Fed, further aiding emerging market weakness.”
The rand has suffered its deepest losses since mid-June as a result of a second wave of Covid-19 infections sweeping across Europe.
However, Goldman Sachs forecasts, as reported by Pound Sterling Live, point to the local unit recovering not only all of its recent losses, but also a larger portion of its 2020 loss by the end of the year.
“The case for the strength of the rand, in our opinion, does not depend on national fundamentals, but on the currency’s high ‘beta’ for an encouraging global outlook. Since mid-August, that case has started to develop rapidly, ”the bank said.
“ZAR has significant room to go further back – scan so deeply undervalued in our metrics.”
However, risks persist in the run-up to the mid-term budget in October, where Finance Minister Tito Mboweni will have to convince markets that South Africa has a sustainable path through its post-Covid economic recovery, while balancing emerging issues like -Billion rand bailout for SAA.
Other factors
US President Donald Trump has also revolutionized markets by calling on the United Nations to take action against China and hold it accountable for the pandemic.
The US president claimed that while China closed its borders during the initial stages of the outbreak, it allowed travel outside the country, effectively infecting the rest of the world.
While analysts say the president’s call is likely to find little support in the UN, it risks exacerbating already unstable relations between the two nations, which have been embroiled in a long-running trade war.
Adding to the market nerves is the revelation of a series of suspicious transactions throughout the global banking system.
Earlier this week, leaked reports found that global banks moved large sums of allegedly illicit funds over nearly two decades, despite red flags about the origin of the money.
The consortium reported that the files contained information on transactions worth more than $ 2 trillion between 1999 and 2017, and the internal compliance departments of financial institutions flagged them as suspicious.
Reuters said the reports are not necessarily proof of wrongdoing, and the ICIJ reported that the documents were a small fraction of the reports filed with FinCEN.
Five global banks appeared most frequently in the documents: HSBC Holdings Plc, JPMorgan Chase & Co, Deutsche Bank AG, Standard Chartered Plc and Bank of New York Mellon Corp.
As of 4:00 p.m. on Wednesday, the rand was trading at the following levels against the major currencies:
- USD / ZAR: R17.03
- USD / EUR: R19.89
- US Dollar / GBP: R21.70
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