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By Wichard Cilliers*
(TreasuryONE) – It is certainly not any good news on the currency front at this stage. See the graph below. The rand is now almost 40% weaker against the US dollar than at the start of 2020.
On Friday evening Fitch downgraded South Africa’s long-term foreign currency debt from BB+ to BB with a negative outlook. Fitch has cited a lack of a clear path towards government debt stabilisation and also the extended impact the Covid-19 pandemic is going to have on public finances. They expect our GDP to contract by 3.8% in 2020.
The ZAR is reeling on the back foot and is trading at R19.25 this morning.
Oil has dropped following a record surge last week, as the OPEC meeting on a production cut, which was scheduled to happen today, has been delayed. Oil is down around 3% on the back of this.
Asian equities are all trading up this morning as there is some slight glimmer of hope as some countries’ Covid-19 deaths and new reported cases are slowing. US equity futures are also all in the green. This is after US President Donald Trump told Americans that they need to brace for the worst week with regards to Covid-19.
Gold and other precious metals are trading rather flat this morning with gold still holding above $1,600. We will need to watch what comes out this week very carefully as anything at this stage can have a massive impact on the markets. The market players are certainly not willing to take on any South Africa risk at this stage, as we need to get our house in order.
Except for Mexico which is also under pressure, the rest of the emerging market currencies are more stable. For now, we remain in the hands of thin liquidity and very negative sentiment. Stay safe.
- Wichard Cilliers is Chief of Dealing at TreasuryONE.
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