On Tuesday morning, the rand approached R18.50/$ - trading at levels last seen in early 2020 as the country digested the implications of the first hard Covid-19 lockdown.

The currency is under pressure ahead of Wednesday's medium-term budget speech announcement, and has also taken a knock as riskier assets digested political developments in China, the biggest single destination for South Africa's exports.

After losing 1.7% against the greenback to R18.39/$ on Monday, in early trade the local currency slipped another 0.5% to R18.482/$. By midmorning, it was trading at R18.44. 

Ahead of the medium-term budget policy statement on Wednesday, markets have been factoring in likely assistance from the fiscus for both Transnet and Eskom, which would lower the opportunity for fiscal consolidation and so has undermined the rand, says Annabel Bishop, Investec chief economist.

News24 reported  Monday that a revenue-starved Transnet might need financial support from the National Treasury in the form of an equity injection, loan guarantees, or both by February.  

Government is also expected to absorb at least part of Eskom’s debt onto its balance sheet in future, and while markets have been disappointed before at previous budgets, government is expected to give some clarity on its plans this week, Bishop said. 

"The growth negative effects of Transnet and Eskom's inability to consistently meet demand for their services, with no immediate solutions for electricity, rail and port transport seen in 2022 or 2023" are also weighing on the currency, she added.  Finance minister Enoch Godongwana will deliver the medium-term budget speech at 14:00 on Wednesday.

Emerging markets came under pressure from the massive sell-off in Chinese assets after the wake of president Xi Jinping secured a third term as leader of the Chinese Communist Party, with a new cabinet packed with hardline party members, TreasuryOne currency strategist Andre Cilliers said in a note.

Cilliers says markets are also watching the public sector wage negotiations, and implications of the condition of state-owned enterprises for the fiscus.

Cosatu has returned to its demand for a 10% wage increase, rejecting an offer of 3% from the state.

The rand had also weakened against both the euro and pound on Tuesday, slipping 0.6% to R20.88/$, a level last seen in early 2022. The pound had firmed on Monday on the election of new Prime Minister Rishi Sunak, who is expected to help restore market confidence.

The market "absolutely loved" Sunak's appointment, but hated Xi's appointment, said Swissquote Bank senior analyst Ipek Ozkardeskaya said in a note.

While the selloff may present buying opportunities for some, "one needs solid nerves to go long in Chinese assets right now," she said.