Rand slumps as global investors take fright.

 

On Monday, the rand fell over 3% to R15.78/$, as traders around the world sought refuge in safe-haven currencies.

On Monday, the US dollar touched a two-year high as a wave of risk aversion rocked global markets, while the Chinese yuan was set for its longest three-day losing run in over four years, owing to mounting concerns about China's economic slowdown.

Investors dropped currency market darlings including the Australian dollar and the offshore Chinese yuan as the crisis in Ukraine entered its third month and mounting fears of a China-wide COVID-19 outbreak sparked a panic in Chinese stocks.

The dollar rose 0.6 percent against a basket of competitor currencies to 101.75, its highest level since March 2020.

"Fears about Covid-19 continuing to affect China's lack of action can only explain this dollar supremacy," said Juan Perez, director of trading at Monex USA in Washington.

"According to economic figures, Chinese data has been OK, but there is rising fear that the No-Covid or zero-Covid restrictions are forcing forecasts to be revised even lower. Shutdowns in China are suffocating global optimism "Added he.

China's yuan plummeted to a one-year low versus the dollar, closing at 6.4575 yuan per US dollar, down 0.9 percent.

The Australian dollar, which had been one of the best-performing currencies in the first quarter of 2022 due to rising commodities prices, plummeted. It declined 1.5 percent against the US dollar, to US$0.7138, and 2.1 percent against the euro the Japanese yen.

The Norwegian crown also dropped over 2% against the US dollar, which was last trading at 9.1235.

Broader currency market volatility gauges increased, with one index reaching new highs in almost a month. Despite the increase in currency market volatility, analysts at BofA Securities noted that investors were long the Canadian dollar, Australian dollar, and euro.

The euro's small gains following French President Emmanuel Macron's resounding election victory over far-right competitor Marine Le Pen swiftly faded, with the single currency down 0.9 percent to $1.0716 against a resurgent dollar.

Hedge funds reduced their long euro wagers last week, according to the most recent positioning data. Last week's hawkish remarks by a number of policymakers heightened the possibility of aggressive policy tightening by global central banks.

The US Federal Reserve is expected to hike interest rates by a half point at its next two sessions, while the European Central Bank is expected to boost rates by 25 basis points in July.

In addition, the rand was trading at R16.91 per euro and R20.01 per pound.