The rand could lose over 10% of its value by the end of 2017
While the South African rand may not be the most volatile currency in the world anymore (for now) – the outlook for 2017 does not look very bright.
As 2016 showed, pegging an accurate year-end level for the currency is a tricky affair, with most outcomes based on any given number of scenarios that could play out.
However, early predictions give a solid guideline as to how the market expects the year to go. With 2017 primed to be an especially turbulent year politically, these projections are likely to change as the year progresses.
South Africa has much to watch out for in the coming year, including ongoing political battles involving the president (around state capture and possibly his corruption charges), as well as more ratings reviews, as the country hangs with the ‘junk’ axe over its neck.
But most importantly, the ANC’s elective, consultative and policy conferences lie ahead, which will ultimately determine the way forward for all of us.
Beyond these local events, many international variables will also play a part – with the World Bank specifically warning that the South African rand could come under pressure in 2017 thanks to the uncertainty surrounding the USA’s policies under Donald Trump.
While it sees South Africa’s economy growing in 2017, the bank’s global risk outlook for the country is definitely tilted to the downside, which will reflect in the local currency’s trade, it said.
Rand could decline by as much as 12%
Market research and analysis firm, Nomura, says it expects the rand to hit R15.50 (-12%) to the dollar by the end of 2017.
This forecast is more muted than the extremes of 2016 (where it was predicted to end at R19 to the dollar), but reflects the more muted start to the year.
Notably, Nomura said that following the almost extreme ups and downs in the rand during the course of 2016 – closely tracking the political moves and mis-steps of president Jacob Zuma – the market has “become bored”, and likely won’t react to every little thing that happens.
The only scenario where such harsh reactions would be felt again, would be on market shocks like finance minister Pravin Gordhan being successfully removed from his position – in which case the rand would take a big hit – or if the country gets cut to junk.
A recent Reuters poll of 36 strategists and economists from around the world showed the rand could hit R14.53 (-5%) against the dollar at the end of the year when the ANC is due to choose a successor to President Jacob Zuma.
According to chief economist at the Efficient Group, Dawie Roodt, while the rand continued to be undervalued by the market (even at current levels), the political agenda for the year ahead is likely to be more negative – though a positive tilt is still possible.
Roodt said that a ratings downgrade is “probably a given” later in 2017, but may be avoided if growth is around 1.5%. South Africa’s GDP growth may surprise us. However, the dollar looks like it will remain strong, and will strengthen further, which means bad news for the rand.
Roodt’s view was that on the current path, with nothing major happening, the rand will end the year between R14 and R15, in line with other projections. Should some sort of crisis hit, it could dip to the R16 to R18 levels.
For a more optimistic view – if good things happen during the course of the year, the rand could strengthen to between R12 and R13, the economist said. This is currently ‘the most likely scenario’ held by the Efficient Group.
Read: What happened to the predictions of R19 to the dollar at the end of 2016?
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