ECONOMIC WEEK AHEAD: All eyes on the rand as pandemic holds sway
The next bout of volatility would take the rand to R20/$, says analyst
With little on the economic calendar this week, all eyes will be on the economic effect of the worsening Covid-19 outbreak, which has put the rand at risk of reaching R20/$.
Countries worldwide, including SA, are in lockdown in a bid to contain the viral outbreak, and the next weeks are expected to be crucial.
Mining and manufacturing data for February was due this week but Stats SA has pushed back its publication schedule to May.
US officials warned last week that deaths are expected to peak around mid-April, and there could be up to 240,000 deaths in the world’s largest economy.
There has been a focus on the economic ramifications of the coronavirus, with the rand reaching R19/$ for the first time on Friday after SA was cut deeper into junk status by Fitch Ratings.
While emerging-market currencies are mostly weaker in what is still a risk-off environment, the rand’s underperformance compared to its peers is testament to the effect of domestic news on its behaviour, says IG senior market analyst Shaun Murison.
The rand was moving deeper into oversold territory, but it was possible the next bout of volatility would take the rand to R20/$, he said.
“It would appear that the initial panic in markets has subsided but they will continue to be subject to bouts of increased volatility as we learn of the actual rather than assumed impacts of the Covid-19 pandemic,” Murison said.
SA’s foreign exchange reserves data for March is due on Tuesday. It refers to the cash and other assets available to balance payments, or serve as emergency funds.
The Reserve Bank reported that in February SA’s gross international reserves had increased by about $100m to $54.71bn (about R1-trillion) from January — mostly due to an increase in gold reserves.
In rand terms in March, the gross international reserves position will experience revaluation effects from the rand’s substantial weakness against the dollar, while the gold price has remained fairly similar to February, said Investec economist Lara Hodes.
The SA Chamber of Commerce and Industry’s (Sacci’s) business confidence index for March is due on Wednesday and is likely to reflect SA’s weakening economic outlook.
The index rose slightly to 92.7 index points in February compared with January, but was down year on year. Sacci noted at the time while the coronavirus outbreak was hitting some global markets, it had not yet had a material effect on SA.
SA’s recession woes predate the viral outbreak, and the economy should enter a short, deep recession in 2020, says FNB chief economist Mamello Matikinca-Ngwenya.
SA looks set for a 4.5% contraction year on year in 2020, FNB said.
“While decisive actions by the government to slow infection rates are welcomed, they come at a hefty cost,” said Matikinca-Ngwenya.