At around R12.30 against the dollar on Friday (5 January), the rand is currently enjoying highs last seen in mid-2015 against the US currency following the election of Cyril Ramaphosa as the new leader of the ANC.
According to strategists polled by Reuters on Friday, this is just about fair value for the currency, although, technical indicators suggest the rand is overbought.
There are also doubts about how much Ramaphosa, a promised reformer, can do for South Africa’s ailing economy, with the polled strategists saying that the rand is likely to weaken by as much as 12% by the end of 2018.
This could see the local unit at R13.85 against the dollar by the end of the year – a smaller decline than the R14.30 predicted during 2018 in a previous poll.
“It is still going to be a challenging year. There is some scope for the rand to appreciate, but investors will be looking closely at how quickly Ramaphosa will be able to make progress on structural reforms,” said Piotr Matys, a strategist at Rabobank.
Ramaphosa won the race to be leader of the ANC but failed to decisively take control of South Africa’s ruling party from Jacob Zuma. His incomplete victory could therefore hinder his chances of implementing reforms to stimulate economic growth, which he placed at the centre of his campaign for the ANC’s top job.
A separate Reuters poll in December put growth for 2018 at 1.2% from a 0.9% estimate in 2017.
PoundSterlingLive recently published a round-up of predictions for the rand in 2018 by a number of international analysts.
While the analysts focused on Ramaphosa’s win, they also cautioned on additional potential road blocks including the upcoming announcement by ratings agency Moodys and whether or not it will follow in the footsteps of Standard & Poor’s by stripping South Africa of its local currency investment grade rating.
Sonja Keller, senior economist at J.P Morgan said that the firm’s base macroeconomic projections see the rand at R14.50 to the dollar – regardless of who won the December election. This was the same forecast given by Hans Redeker and James Lord, FX strategists at Morgan Stanley which considered the rand in the broader context of emerging markets.
“The high real returns offered in EM could well moderate a bit from 2017 levels, but are likely to remain higher as strong global growth keeps demand for local capital high,” they said.
“Generally, EM countries are still in the early stages of the economic cycle as the 2014/15 EM recession forced EM countries, particularly those dependent on foreign funding, to clean up their balance sheets and eliminate their low-performing investments.”
While four of the five interviewed analysts put the rand at this R14.50 mark against the greenback, Gabriele Foa and Gabriel Tenorio, EM and FX strategists at Bank of America Merrill Lynch predicted that the rand could reach R15 to the dollar by the end of 2018.