Money and Markets

Rand hit by horror slump: Here's how it compares to recent crashes

Business Insider SA
Dollar/rand. Source: Trading Economics
  • The rand slumped to a record low of R18.64/$ on Thursday.
  • It has been dragged lower along with its emerging market peers as investors worry about a sharp global downturn.
  • Its 33% crash since the start of the coronavirus crisis is one of the worst in recent years. 
  • For more stories, go to Business Insider's home page.

The rand has crashed to a new low, hit by new fears about how emerging markets will survive the corona-induced economic downturn.

The currency blew out to R18.64/$ on Thursday – after starting 2020 around the R14/$ level.

A shock US unemployment number - a record of 6.6 million people claimed jobless benefits over the past week – renewed fears that the current global economic slump will be hard and long.

These concerns have fuelled a large flight of capital from emerging markets, amid concerns about how they will be able service their debts as growth stalls.

Investment banks and hedge funds are also shying away from emerging market assets as the fear that these countries have not yet felt the full impact of the coronavirus, says Andre Botha, Senior Dealer at TreasuryONE.

The rand has now lost 7% over the past week, with the currencies of Brazil and Mexico both down 5%. The SA currency, as well as the Russian rouble, is 20% weaker than a month ago, while the Mexican peso has lost more than 25%. 

Since the outbreak of the Covid-19 crisis in mid-January, the rand is down a third - the second-worst crash in recent years.

Using intraday trading data, independent market analyst Johann Biermann, compiled the following list of the largest slumps in the local currency against the dollar:

-47% Global financial crisis

From 29 September 2008 (R8.05) to 22 October 2008 (R11.87)

The rand went into meltdown mode during this extremely turbulent time. The housing boom in the US gave rise to a subprime lending crisis: people who couldn't afford it, were given large mortgages. These dud mortgages were then sold off to banks through intricate financial instruments, which triggered a massive confidence crisis in the financial sector, eventually pushing it to the brink of collapse.

Investors sold off risky assets - particularly in emerging markets - and fled to the safety of the US dollar, which saw massive gains during this time. 

Read: The 27 scariest moments of the financial crisis

-33% Coronavirus crisis and Moody's downgrade

Source: Johann Biermann/Bloomberg

Covid-19 has now killed almost 50 000 people, with economies across the world shutting down to curb the spread of the virus.

The expectation of a deep economic slump and resultant market turmoil have fuelled a flight to safety (particularly to the dollar). This has heaped pressure on emerging markets, particularly those who struggle with debt and growth. South Africa is one of the main culprits, and Moody's decision to strip it of its investment-grade rating has added to pressure on its currency. 

READ | South Africa is ‘junk’ – here’s what that means to you

-21.9% Eurozone crisis

From 1 September 2011 (R6.97) to 22 September 2011 (R8.49)   

The crisis in the eurozone during this time caused turmoil all around the world. As ratings agencies downgraded Italy, and investors worried about the stability of the eurozone, there was a massive influx into safe haven currencies like the US dollar and Swiss franc. Investments in emerging markets all but dried up.

-16.4% Taper tantrum

From 6 May 2013 (R8.91) to 11 June 2013 (R10.37)

(Getty Images)

This sharp fall was due to the infamous ‘taper tantrum’: a global sell-off triggered by the surprise announcement by then Fed chair Ben Bernanke that the US central bank was considering scaling down quantitative easing, the massive amounts of money it pumped into global markets. Over the course of 2013, the rand lost almost a quarter of its value.

-16.0% Turkey turmoil

From 9 August 2018 (R13.41) to 13 August 2018 (R15.55)     

(Geopolitical Futures)

This rand shock originated in Turkey, where the economic fallout from a diplomatic spat with the US soon snowballed into grave concerns about the Turkish debt situation. Denominated debt represented half of its GDP, and its president’s meddling in monetary policy aggravated investor concerns.

-14.9% Eurozone crisis

From 28 July 2011 (R6.62) to 9 August 2011 (R7.61)         

While the EU had approved a bail-out package for Greece by this stage, the eurozone crisis was still in full swing. During this time, US bond yields spiked to above 3% and investors ditched emerging market assets, including the rand.

-14.7% Chinese meltdown

From 6 January 2016 (R15.62) to 11 January 2016 (R17.92)

The rand’s steep fall was triggered by a shock slump in the Chinese market. Chinese authorities repeatedly had to halt trading after sharp declines in share prices. This instability triggered large losses on global markets and – as China is the world’s biggest consumer of commodities - compounded the slump in metal prices. As a large platinum and gold producer, South Africa was hit hard.

-13.3% Pravin Gordhan fired

From 27 March 2017 (R12.31) to 11 April 2017 (R13.96)

Pravin Gordhan. (Pic: Bongiwe Gumede/Foto24)

Pravin Gordhan was fired as finance minister on 30 March 2017, which caused havoc in the local market and was followed by credit rating downgrades. Almost a third of the top rand crashes relate to the SA finance ministry.

-13.2% Grexit fears

From 3 May 2012 (R7.69) to 1 June 2012 (R8.71)                             

The rand fell victim to more uncertainty about the eurozone in the run-up to elections in Greece, with investors fearing that an anti-austerity group of parties could force a "Grexit".

-12.5% Fallout of global financial crisis

From 9 February 2009 (R9.53) to 5 March 2009 (R10.73)

This was a grim period during the global financial crisis, with massive losses among banks, which continued to receive emergency capital from governments. The MSCI World Index lost more than 9% during this time. In a single quarter, Japan’s economy shrank by 12% and Germany saw a 2% decline in its GDP.

-11.2% Gordhan arrest rumours

From 19 August 2016 (R13.17) to 31 August 2016 (R14.65)

The rand took a hit amid rumours that the then Finance Minister Pravin Gordhan was on the verge of being arrested. This followed a report that Gordhan was summoned by the Hawks to answer charges relating to a so-called rogue unit in the SA Revenue Serivce. 

-10.7% Nenegate

From 9 December 2015 (R14.51) to 11 December 2015 (R16.05)  

On 9 December 2015, then president Jacob Zuma replaced respected finance minister Nhlanhla Nene with ANC MP David van Rooyen. A sharp sell-off followed, which was halted by the appointment of Pravin Gordhan.

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