Rand surges in South Africa – but it’s not plain sailing
The rand gained strongly on Thursday (13 July), touching its highest in more than three months; however, it’s not going to be easy to keep it up.
The domestic currency’s moves followed slower-than-expected US inflation data. As a result, the tamer inflation dented the dollar – strengthening the rand.
US inflation has decreased for 12 consecutive months, with the Federal Reserve reporting an ease in annual inflation to 3% in June, the lowest since March 2021 and well below market expectations.
Currently, the rand is sitting at R17.94.
Speaking to the Money Show, Nolan Wapenaar, the co-chief investment officer at Anchor Capital, said there are still likely to be a handful of twists and turns regarding global inflation and the rands reaction.
He said that the inflation figures from the Fed were like ‘water on parched earth’ as markets have been so devoid of good news on the inflation front that this was received with great excitement.
“If you look deeper into the numbers, core inflation in the US, for example, is still running at 4.8%. What that’s saying is that your more volatile items like fuel and food costs have come down quite dramatically over the last year. However, there are still underlying inflation problems in the US economy, which will worry the US Reserve,” Wapenaar said.
He said that Anchor Capital just published its asset allocation navigator regarding the rand.
The company predicted that in 12 months, the rand would be closer to R17.50 to the greenback.
“So longer term, there’s a good propensity for it to recover some lost ground, but in the short term, we’re not into the plain sailing yet,” said Wapenaar.
For example, the energy crisis threatens domestic inflation and the rand daily.
Reuters reported that the rand’s gains came despite local mining output declining by 0.8% in May following a revised rise of 3.2% in April.
“Miners face headwinds including the worst rolling blackouts on record, a major drain on power-hungry sectors,” reported Reuters.
Thanda Sithole, a senior economist at FNB, said the decline in mining production reflected sustained weakness in the sector.
Investec’s chief economist Annabel Bishop also said that US interest rate movements continue to threaten the rand.
She added that if the SARB was not to hike rates in July and the US was to push them up by 25 basis points or pauses, South Africa would remain below the US in terms of the actual rise in interest rates.
“This would continue to undermine the rand, while US interest rate hikes add to market risk aversion and therefore weaken risk assets, including emerging market currencies and the domestic currency,” said Bishop.
Read: Why the Reserve Bank’s next interest rate move could be better than expected
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