Rand gains with other emerging currencies on coronavirus hopes

South Africa’s rand firmed by more than 2% on Tuesday, in line with a broad rally in emerging market currencies and other riskier assets on hopes of a slowdown in the spread of the coronavirus in some countries.

Stocks were also significantly higher, as investors who had kept on the sidelines through recent volatility re-entered the market to take advantage of historically low prices.

The rand was 2.29% firmer at 18.2400 per dollar by 17.49, its best level since Thursday. Investors said the fact it had crossed key technical levels at 18.50 and 18.20 signalled the possibility of sustained gains.

“At around 19.50 the rand was very oversold. It’s fair value is closer to 15.50. Every time the rand has collapsed, which happens a lot, within a year it comes back to fair value,” said Wayne McCurrie, portfolio manager at FNB.

The currency extended a rally from the previous session, spurred by an apparent slowdown in the rate of new Covid-19 cases in the United States and some European countries, attracting investors drawn to its high returns, or carry yield.

The rand has so far managed to weather a policy storm building around a likely bailout from the International Monetary Fund (IMF).

“The main reason countries go to the IMF is a balance of payments crisis. But we have very little external, foreign currency debt. So there’s no need to go the IMF cap-in-hand. We’re a long way from that,” McCurrie said.

Bonds firmed, with the yield on the benchmark issue due in 2030 down 46 basis points to 10.000%.

The Johannesburg Stock Exchange’s Top-40 index closed up 2.48% at 43,590 points while the All-Share index rose 2.72% to close at 47,496.72 points.

Banks were in focus after the central bank late on Monday advised them not to distribute dividends and put bonuses for senior executives on hold.

Read: Covid-19: Freeze dividends and exec bonuses, Sarb tells bankers

The bank index fell in early trade before soaring 10%, with some traders seeing an opportunity to buy at low valuations. The bank index closed up 6.72%.

The National Treasury is considering creating a scheme to encourage bank lending to small businesses and consumers as one response to the coronavirus outbreak, central bank deputy governor Kuben Naidoo told Reuters.