KEY POINTS

• The global spread of the coronavirus pandemic sent investors flocking to the greenback in March and hammered emerging market currencies, but the dollar is now down more than 4% against the rand since the start of June.
• “A cross-continental easing in restrictions on economic activity — in some cases spurred by protests, as in Senegal — furthered the recovery in currencies this week from South Africa to Kenya,” Michael Nderitu, head of trading at pan-African currency broker AZA, said in a note Friday.

The South African rand hit an 11-week high on Monday morning following a broad rally in African currencies last week, fueled by the reopening of economies on the continent and an uptick in global risk sentiment.

As of late Monday morning, the rand was trading at 16.8012 to the dollar, slightly retreating after hitting its strongest price since March 18 earlier in the day, at 16.7762.

The global spread of the coronavirus pandemic sent investors flocking to the greenback in March and hammered emerging market currencies. However, the dollar is now down more than 4% against the rand since the beginning of June.

The move comes despite a steep incline in confirmed coronavirus cases in South Africa, which has now recorded more than 48,000 cases as it tries to relax lockdown measures.

While acknowledging that the spread will likely continue, President Cyril Ramaphosa has suggested that the lockdowns bought valuable time to prepare health services for an expected surge.

Despite South Africa expecting a 7% contraction in gross domestic product this year — which will be its worst since World War II — analysts now believe there are a combination of factors that indicate the rand, and a host of currencies in sub-Saharan Africa, could have further to go.

“A cross-continental easing in restrictions on economic activity — in some cases spurred by protests, as in Senegal — furthered the recovery in currencies this week from South Africa to Kenya,” Michael Nderitu, head of trading at pan-African currency broker AZA, said in a note Friday.

“While a heavy economic toll continues, we see the reopening of businesses and markets, helped by easing of monetary and fiscal policies, steadying or strengthening currencies near term.”

The South African Reserve Bank has cut its main lending rate four times this year to a record low of 3.75%, with further cuts widely expected as it looks to mitigate the coronavirus fallout.

Luis Costa, CEEMEA head of FX and rates strategy at Citi, told CNBC on Monday that the broad dollar depreciation and euro rally seen in recent days was historically a “very important relief for EM (emerging market) high yielding currencies.”

“That, in a way, makes the bond trade even more interesting in these economies, where you still have some degree of steepness in the (yield) curve and you could argue that central banks still have some space to cut rates, so there is a very interesting positive link between international flows into bonds and currency appreciation in these economies,” Costa told CNBC’s “Street Signs Europe.”

Nigeria and Kenya

Nigeria’s central bank-controlled naira came under pressure in the black market as importers looked to snap up dollars from unofficial vendors, owing to a broad slump in supply from official sources and the resumption of business activity.

Despite this, the Central Bank of Nigeria (CBN) has held the official spot rate around the 361 mark since the end of March. In live foreign exchange markets, the naira was trading at 388 to the dollar on Monday, around where it has been since the beginning of the month.

“With support from the IMF’s $3.4 billion rapid finance instrument, Nigeria’s dollar reserves have climbed to $36.57 billion, adequate to support the local currency from current pressures,” said AZA Trading Desk Manager Murega Mungai.

“With the recovery in oil prices as a continued positive indicator for the economy, we foresee sustained levels in the coming days.”

Africa’s largest economy agreed on Sunday to extend oil production cuts until the end of July as part of the OPEC+ deal which has helped bolster crude prices over the last two months. The group of oil-producing countries has also demanded that Nigeria compensate for exceeding May and June’s quotas by implementing extra cuts up until September.

Kenya’s shilling benefited last week from anticipation that the government would announce an easing of its curfew and travel restrictions on Saturday, but President Uhuru Kenyatta instead extended the measures as the country continues to battle Covid-19.

Despite the setback, the shilling held firm at just above 106 to the dollar on Monday morning, which AZA analysts attributed mainly to dollar inflows from agricultural exports. AZA Treasury Associate Terry Karanja projected in Friday’s note that increased export activity would likely drive further positive momentum for the currency in the coming days.