Understandably, these are hard times for everyone across the world. The novel coronavirus has been attacking the world economies and societal normalities from all sides creating a vast ocean of muddy uncertainty nobody can peer through. The global economic shutdown with almost every country locking down their borders to wait out this pandemic has had an adverse effect on economic growth, currency values, and overall markets. This is the most apparent in the foreign exchange market (Forex, FX) where the volatility has been scaring off traders left and right with a number of them searching for a safe haven currency.
Heavy social distancing laws have made sure that most of the small-to-middle sized enterprises have to rely on government stimulus packages to stay afloat. It was been a top priority of nations across the globe to quell the rate of infection to make sure that at least within their borders things would be operational. While some of the European countries have succeeded in their efforts even at great losses for countries like Italy, France, and Spain it is worth understanding that these developed states have the necessary infrastructure to support large outbreaks and even with hardships they were able to keep themselves afloat just enough to start recovering afterward. The situation vastly differs for developing nations though. Countries that do not have the necessary medical equipment, properly trained staff, and finances to support their citizens through hard times do not fare well during this crisis.
Africa has been hit the hardest it seems like. South Africa is one of the developing countries which has all but come to a halt due to the rising number of COVID-19 cases. With almost 630,000 infected and 14,000 deceased the nation is struggling to keep itself afloat. Some of the most heavily hit regions are Gauteng, Western Cape, and Eastern Cape. The toll that the virus is taking on the national economy is very much apparent in the foreign exchange market. South Africa’s rand was and to an extent is still one of the worst-performing currencies in the European, African, and Middle Eastern regions. This is largely due to the fact that there are a number of safe-haven demands that have started piling up due to the slowdown that the U.S. economic recovery is going through. Although, until the coronavirus pandemic South African Forex trading was on the rise. It became popular not only in the country but due to the efforts of the Financial Sector Conduct Authority’s (FSCA) efforts to regulate the brokers. The quality is most visible when comparing forex brokers due to the fact that South African firms were able to provide the same type of service for a much cheaper price than their European counterparts.
Unfortunately, the United States of America was unable to quell the numbers and the coronavirus is running rampant in the country with as many as 6 million people confirmed to be infected and almost 200,000 deceased. The efforts of the Trump Administration to open the states have been only partially successful due to the sheer number of outbreaks happening in the country. Obviously, this has basically aided the already existing uncertainty on the financial market.
However, things are not as bad as they look. Last week, the rand managed to hold its positions with global “risk-on” sentiment. The South African Consumer Price Index (CPI) also shows that inflation is well within the South African Reserve Bank’s (SARB) target figure. Due to this, it is apparent that even in the face of some of the European currencies having a stronger week than before a number of traders did still prefer the Emerging Market (EM) currencies. The mess in the US has also helped keep South African Rand (ZAR) between the all-time low and all-time highest Fibonacci levels (38.2% in April 2020 and 23.6% in February 2018).
Apart from this, the psychological level has been sitting at 16.5000 and as it looks the 16.34444 (38.2% Fibonacci level) may be the next line of support. If this barrier breaks the further downturn is to be expected due to the momentum. However, things may not be as dire as they look. The price of 16.3444 may just be the moment of balance for ZAR, which means it may just start rising back up again hopefully until the 23.6% Fibonacci level.
It is hard to understand what is going to happen in the close future right now. It is worth noting that a number of currencies have strengthened due to the expectancy of vaccine that is supposed to come out somewhere in January of 2021. Apart from this, a number of countries in and outside of the EU have left the critical phase already and are starting to operate their inner economies. The Eastern European countries have been extremely successful in dealing with the whole situation with their close partners like the Republic of Georgia also following suit. Hopefully, we will see more countries start opening their borders which may give the world’s economy that small amount of fresh air which it requires the most right now.
