China Covid fears weigh on rand

The rand weakened along with other emerging-market currencies on Monday, while the JSE tracked softer US and European markets as fears of stricter lockdowns in China amid a record daily spike in Covid-19 cases weighed on sentiment.

China reported its first deaths in months, sparking fears of tougher restrictions a week after it issued guidelines aimed at making its Covid19 approach more targeted.

The rand fell as much as 1.5% in intraday trade, its biggest one-day loss in almost a month, while metals pulled the JSE all share index lower.

“The global growth picture has taken a hit following key China lockdowns, more so as the Covid-19 wave proves troubling as it nears some of the more populous districts,” said Oanda senior market analyst Edward Moya. “It seems the zero-Covid policy is not going away soon and that will definitely weigh on global growth. As a result, risk aversion returned to markets, with stocks falling and demand for the dollar rising.”

At 6.21pm, the rand had weakened 0.75% to R17.2957/$, while it was little changed at R17.7249/€ and R20.3652/£. The euro was 0.75% weaker at $1.0247.

Markets this week will be looking to the minutes of the most recent US Federal Reserve policy meeting, due for release on Wednesday, for more clues on how the central bank will go about raising interest rates, despite cooling inflation. The latest Fed policy minutes are likely to affirm the bank’s commitment to bring inflation down to the 2% target.

Comments from Fed officials — who were less impressed with the cooling inflation figures — led investors to reassess their optimism about the possibility of slowing inflation.

More Fed officials are expected to speak on Tuesday.

“Policymakers appear keen to stress that one inflation number doesn’t make a trend and further evidence will be needed to justify a slower pace of tightening,” said Moya.

“While they will probably be quietly satisfied that inflation has turned a corner, there may also be a determination not to accept that publicly at the risk of undermining its tightening efforts until now.”

The JSE all share lost 0.88% to 71,938 points and the top 40 shed 0.96%. Industrial metals fell 2.32%, resources declined 1.94%, precious metals eased 1.27% and industrials retreated 0.83%. Banks gained 0.49% and financials were up 0.2%.