Rand slips to four-week low as commodities keep unravelling

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The rand slid to its lowest against the dollar in about four weeks on Monday morning as commodity prices plunged further, raising questions about the durability of the commodity windfall that has partially shielded SA against the Covid-19 onslaught.

The currency slipped 0.35% to trade at R14.83/$, marking a reversal from R14.12/$ touched on Tuesday last week, though still better than a five-month low of R15.40/$ in mid-August.

The plunge in commodity prices deepened amid concerns that the global economic recovery may have peaked, and due to a strong dollar before the US Federal Reserve’s policy meeting on Wednesday that could prepare ground for a reduction in its monthly bond-buying programme.

Platinum fell 2.18% to $920.58oz, its lowest level since November and palladium plunged 3% to trade at its weakest level since early-July at about $1,256/oz. The iron price was hovering around $100 per tonne, after peaking at $238.64 in May.

Commodity prices surged in the second half of 2020, driven partly by Covid-19-induced supply concerns and a rebound in global economic activity. SA has benefited via higher tax receipts and mineral royalties as higher metal prices boosted mining companies’ profits.

“Commodities are also being sold heavily this morning after China’s Premier Li over the weekend said that China will use ‘market tools’ to stabilise commodity prices.”  Jeffrey Halley, senior market analyst at Oanda said in a note.

“I am assuming that means releasing more commodities onto domestic markets from China’s strategic reserves. As a price-taker, and not a price-maker, there is only so much China can do to impact prices in the medium term.”

Lower metal prices will play out the negatively in the JSE-listed mining shares, which are already in correction territory after peaking in the first half of the year.

Elsewhere,  Hong Kong’s Hang Seng was down 3.3%, reflecting a general-risk off environment.