Rand rallies as vaccine hopes boost risk-taking

The rand raced to a new one-month best on Wednesday in a broad rally by risk assets spurred by progress towards a COVID-19 vaccine.

At 1515 GMT the rand was 1% firmer at R16.56 per dollar from an opening level of R16.72. It led a rally by emerging market currencies as the US dollar slumped to a one-month low and investors chased returns and ditched safe-havens.

The US company Moderna has produced an experimental COVID-19 vaccine that provoked immune responses in all 45 volunteers, sparking a risk-on mood.

The euro, a barometer for global risk demand, rose to a four-month high against the dollar on expectations European Union leaders may agree on stimulus and deepening fiscal integration to shield the economy from the COVID-19 pandemic.

“With the pandemic peak unlikely to occur until September, the economy cannot be put on hold until then. But South Africa’s COVID-19 spike certainly illustrates what can happen in EM after lockdown restrictions are relaxed,” said Francesca Beausang, senior economist at Continuum Economics.

South Africa was set to reach 300,000 COVID-19 cases on Wednesday, the most in Africa and in the global top 10, despite a swiftly imposed lockdown aimed at preventing infections which was tightened on Sunday by President Cyril Ramaphosa.

Consumer inflation figures showed price-growth near a 16-year low, but analysts are divided on whether this will prompt the central bank to add to the 275 basis points of lending rate cuts it has made since the beginning of the year.

Following global markets which raced up on Thursday on hopes of a vaccine and a quicker economic recovery, the FTSE/JSE All Share Index closed up 0.75% at 55,947 points, while the FTSE/JSE Top 40 Companies Index ended up 0.73% at 51,607 points.

Bonds also firmed, with the yield on South Africa’s 2030 government issue 8 basis points lower at 9.375%.