South African rand tumbles on Fed, dismal domestic data

JOHANNESBURG: South Africa's rand was on track for its biggest daily fall since November 2016 on Thursday, as global investors dumped riskier assets and dismal domestic data drove home the economic impact of the COVID-19 pandemic.

The rand is seen by some as a proxy for emerging market risk, so it tends to swing wildly at times of market volatility.

And Thursday was a brutal day for global markets, after the US Federal Reserve painted a bleak picture of the health of the world's biggest economy and investors worried about new coronavirus infections as lockdowns aimed at curbing the virus ease.

The rand's decline of more than 3% against the US dollar was steeper than for other emerging market units like the Russian rouble or Turkish lira.

"It is mostly to do with the overall risk-off move (in global markets), but it's combined also with the central bank's intentions to have lower rates and have potentially negative real rates," said Peter Kisler, North Asset Management emerging market portfolio manager.

The South African Reserve Bank has cut rates by 275 basis points so far this year, to 3.75%, bringing them below the level of annual inflation in March, the latest month for which data is available.

The rand's sharp move weaker, which took it above 17 per dollar, marked a relapse for a currency that had gained some 11% against the dollar from the start of May to Wednesday's close.

Mining data on Thursday highlighted how South Africa's strict lockdown crippled output in April, and manufacturing data showed the sector was in bad shape even before the lockdown.

Africa's most industrialised economy could contract by 7% this year, according to a central bank prediction.

On the local bourse, stocks slid for a fourth session this week, mirroring falls in global equities markets.

The benchmark All-share Index closed down 0.7% at 53,295 points, while the Top-40 Index fell 0.6% to 48,892 points. Banks led decliners, with the banking index down 2%.