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Rand strengthens as Fed cut bets slow virus-linked selloff

The rand has tanked 13% since the beginning of 2020 and 4% since Wednesday’s budget speech where the treasury announced higher budget deficits and debt, as well as plans to slash public sector wages, raising the likelihood of a credit downgrade by Moody’s.

South African rand. Picture: Christa Eybers/EWN

JOHANNESBURG - The rand strengthened on Monday as central banks abroad signalled a willingness to shield their economies against the coronavirus, though the currency was restrained by anticipation of another batch of grim local data.

Stocks recovered, breaking a two-day losing streak that saw them shed over 7%, as local equities tracked overseas shares higher, with retailers Shoprite, Miner AngloGold and tech giant Naspers leading the upward trend.

At 1641 GMT, the rand was 0.35% stronger at R15.5770 per dollar, stepping back from a session-best R15.4670 as the reaction to higher bets of the US Federal Reserve cutting rates this month ebbed.

The rand has tanked 13% since the beginning of 2020 and 4% since Wednesday’s budget speech where the treasury announced higher budget deficits and debt, as well as plans to slash public sector wages, raising the likelihood of a credit downgrade by Moody’s.

Traders trimmed big bets ahead of Tuesday’s release of 2019 Q4 data expected to show the economy went into a technical recession, raising further the likelihood of the country losing its final investment grade credit rating from Moody’s.

Stocks also benefited from the central bank’s willingness to pump liquidity into markets, with Naspers up nearly 3% on the day, while AngloGold climbed 2% to the rand, and Shoprite’s price increased 5.5% to the rand.

“There is a bit of calm around coronavirus based on some big central banks stipulating they are willing to provide liquidity to protect against the impact of the virus. The Fed looks like it will cut, and the PBOC has come out with stimulus measures already,” said Lester Davids, a trader at Unum Capital.

“Naspers is still trading at a big discount with regard to its underlying assets, so at these levels it could be seen as an opportunity in context of the current selloff.”

Overall, the Johannesburg Stock Exchange’s Top-40 index rose 1.74% to 46,648 points and the broader all-share index closed 1.57% higher at 51,840 points. Bonds rallied, with the yield on the government issue due in 2030 down 9.5 basis points to 9.01%.