Rand clings on to gains to end 2020 on a high

The rand traded flat early on Thursday, the final trading day of the year, with investors opting for caution as coronavirus vaccine rollouts and hopes for stimulus in major economies offset concerns about a second wave locally.

At 0700 GMT the rand was a touch firmer, at 14.61 per dollar from an overnight close of 14.62.

The currency is on course to end 2020 near where it began the year, having rallied in the past three months, mostly due to external events that saw a return of global risk demand following the Covid-19-led selloff earlier in the year.

The rand has gained around 18% against the dollar since early November, and is well off the record low of 19.35 it hit at the height of the pandemic in April.

The gains, also seen in other emerging markets, have been spurred by Democrat Joe Biden’s victory in US polls last month and the development of Covid-19 vaccines globally.

These factors have overshadowed South Africa’s economic woes.

Africa’s most advanced economy also has the continent’s highest coronavirus infection numbers, with more than 1 million confirmed cases and close to 30 000 deaths. Gross domestic product in 2020 is set to shrink around 8%.

Despite the bleak outlook, investors have piled in to take advantage of the currency’s hefty returns, or as part of carry trades.

“Rand outperformance has been notable this quarter with low global growth encouraging central banks to remain ultra-accommodative and keep financial markets liquified. Against this backdrop, high domestic yields attracted portfolio inflows in November and December,” said economists at ETM Analytics.