South Africa’s rand weakened early on Thursday as demand for emerging currencies continued to ebb due to growing concerns over the impact of the coronavirus on the global economy.
At 0645 GMT the rand was 0.32% weaker at 18.5600 per dollar from an opening level of 18.4980, extending losses from the previous session triggered by a grim economic outlook given by the U.S. central bank.
Moves in risk currencies globally, including the rand, have been sentiment-driven in recent sessions, with investors mostly staying on the sidelines as they weigh the prospects of a quick economic recovery against signs of a second wave of COVID-19 infections.
U.S. Federal Reserve chairman Jerome Powell on Wednesday gave a sobering assessment of the U.S. economic outlook in a closely watched speech that quickened a move to safe-haven assets.
The grim outlook highlights South Africa’s economic fragility, with its dependence on trade with and investments from the United States, China and the European Union.
President Cyril Ramaphosa’s announcement late on Wednesday that the country would move to a phase 3 lockdown and further ease restrictions on the economy by the end of the month failed to spur optimism overnight.
“The longer the lockdown persists the weaker household and corporate finances become on a macro level,” said Investec chief economist Annabel Bishop in a note.
Weaker demand is likely to persist even after a full reopening of the economy, she said, as consumers’ ability to spend will have been eroded. “Demand will lag reopening the economy materially.”
Bonds reflected the sour risk mood, with the yield on the government issue due in 2030 up 15 basis points to 9.585%.