The rand hit a new all-time low on Friday morning, as it continued to battle the impact of last week's credit rating downgrade by Moody's and Covid-19 fears which have seen investors fleeing risky emerging market currencies.

The local currency weakened 1.7% to R18.77/$, and it is now nearly 40% weaker than at the same point last year. One of the world's most liquid currencies, the rand has been the worst performing EM currency over the past year, according to analysts from TreasuryONE.

"The South African rand has weakened notably since the year started – more so in the last few days – in step with a dismal external environment," commented NKC African Economics economist Jee-A van der Linde.

"The domestic currency has been dealt blows from all sides. Hammered by the devastating impact of Covid-19, the rand also endured negative market sentiment due to a deterioration in South Africa's growth prospects, compounded by a weakening in its fiscal outlook," he said. The Moody's downgrade to junk status also "added insult to injury."

NKC expects the rand to breach the R20/$ mark in the near-term.

On Monday the currency weakened 2.5% and breached the R18/$ mark for the first time after Moody's downgraded the country's sovereign credit rating to "junk" status. Analysts warned that the worst was yet to come.

"South Africa's economic fundamentals are dismal, and the external environment has grown increasingly hostile. The loss of South Africa's investment-grade status exerts further pressure on the rand, which is already teetering due to the economic damage inflicted by Covid-19," van der Linde explained.

"The spread of the coronavirus to more economies, the imposition of social distancing across the world, compounded by ongoing financial market turmoil despite heavy central bank intervention, will put further strain on domestic economic conditions," he added.

IHS Markit on Friday released its Purchasing Manager's Index data for March – which measures private sector business performance. It showed that the Covid-19 pandemic in March caused business activity to decrease substantially. The index hit a record low of 44.5. A figure greater than 50 reflects an improvement in the sector's performance, while a figure under 50 represents a fall. 

"Business expectations weakened considerably amid further uncertainty on the domestic market," the report read. Employment levels reduced slightly, but larger job losses could be recorded in April, said IHS Markit economist David Owen.