South Africa’s rand plunged by almost 8% against the dollar Monday, touching its weakest level on a closing basis since January 1980, as investors fled riskiest assets, with tumbling oil prices adding to nervousness spurred by the spreading coronavirus.
The currency soon pared losses as investor panic eased to trade 1.9% weaker at 15.9726 per dollar as of 11:50 a.m. in Johannesburg. It briefly pierced the 17 level for the first time since 2016.
Volatility data suggest that the storm is far from over. The premium of options to sell the rand over those to buy it over the next month, known as the 25 Delta risk reversal, surged to the highest in a year.
While global sentiment was the largest factor in the rand’s performance with the currency seen as a proxy for its emerging-market peers local factors including renewed rolling power cuts by Eskom Holdings SOC Ltd and a downbeat assessment by Moody’s Investors Service of South African growth ahead of its ratings review later this month contributed to the selling pressure.
Eskom warned that its maintenance plan must be supported by the government or South Africa can expect regular blackouts from power cuts of 8,000 megawatts by mid-2021, a move that would cripple the economy. The power utility said it will implement rolling blackouts from 9 a.m. on Monday, which may continue until Thursday. Moody’s said on Friday it had trimmed its 2020 gross domestic product growth forecast for Africa’s most industrialized economy to 0.4% from 0.7%.
The yield on rand-denominated government bonds due December 2026 jumped 16 basis points to 8.16%, while yields on generic 10-year notes rose 14 basis points to 9.18%.