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Rand firms despite global fears of fast-spreading Omicron

Variant driving fear on global currency markets, and emerging market currencies were biggest victims. EPA/JEAN-CHRISTOPHE BOTT

Variant driving fear on global currency markets, and emerging market currencies were biggest victims. EPA/JEAN-CHRISTOPHE BOTT

Published Dec 21, 2021

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THE rand rose to a two-week high yesterday, ignoring investor concerns about the fast-spreading Omicron variant that drove a risk-off sentiment against emerging markets currencies.

The wide spreading of the Omicron variant saw new restrictions being introduced in Europe and New York recording the highest cases on record, forcing emerging market currencies to trade softer yesterday.

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The Turkish lira, for one, fell to an all-time low after the country's central bank slashed its policy rate by 100 basis points to 14 percent, meaning the currency has lost nearly 50 percent of its value since the beginning of November.

However, the rand regained its strength by 0.04 percent back to R15.78 by 5pm to the greenback on the back of the US Federal Reserve's hawkish stance.

The US Federal Reserve has decided to begin reducing its bond holdings as soon as the summer, to attack “alarmingly high” inflation.

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TreasuryONE currency strategist Andre Cilliers said the new Covid-19 variant was driving fear on the global currency markets, and emerging market currencies were the biggest victims.

“The ease in which the Omicron variant is currently spreading worldwide has created a risk-off sentiment this morning across all sectors,” Cilliers said.

“After Friday’s carnage in Turkey’s markets, the lira is still on the back foot and currently six percent softer for the day and trading at a new all-time low, 17.40 lira per dollar.”

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Meanwhile, stocks on the JSE fell at a near 1-month low yesterday as rising cases of the Omicron variant in Europe and the US clouded the global economic recovery.

The JSE All Share Index fell over 1.57 percent to 70 087 index points, its lowest since November 29 and in line with its global peers.

At the same time, US President Joe Biden’s economic agenda suffered a serious setback on Sunday after Senator Joe Manchin pulled his support from Democrats’ $1.9 trillion spending bill.

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Locally, the South African government has called on people to adhere to the Covid-19 protocols while they maintain level-one lockdown restrictions despite the fourth wave of infections as the rates of hospitalisations and deaths remain relatively low.

President Cyril Ramaphosa has also returned to work after finishing a week of self-isolation due to testing positive for Covid-19.

Ramaphosa will chair the final Cabinet meeting for 2021 on Wednesday.

The country’s economic outlook for the fourth quarter remains clouded by several factors such as the return of intense load shedding, metalworkers’ strike action and the onset of the Omicron variant, which drove the imposition of travel bans by several countries.

BUSINESS REPORT

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