Here’s where the rand could go over the next 6 months
With the euphoria surrounding the election of Cyril Ramaphosa as national president now beginning to settle, attention has turned towards US president Donald Trump’s threat of a trade war with China.
According to a Reuters poll of 30 strategists taken, 3-5 April, the rand is now expected to remain steady against the dollar on the back of improving domestic economic growth, provided the US-China tariff tussle does not escalate and disturb global trade flows.
The strategists forecast the rand to remain resilient against the dollar, at around R11.93/dollar leading into the fourth quarter, dipping slightly to R12.13/dollar by this time next year.
“What has been driving our rand forecast is that the emerging market fundamental backdrop still looks strong, particularly the interest rate and growth differentials,” said Mike Keenan, strategist at Absa Capital.
“That should help the rand sustain this year’s gains.”
He added, however, that some clarity over how much further tensions between Donald Trump’s White House and China on trade will escalate is a wild card.
Oil
In a separate report released by Bloomberg on Wednesday (4 April), analysts said that the biggest impact on the rand could be fluctuating oil prices.
Specifically a number of analysts have raised concern that Trump’s measures will trigger a trade war may hamper global growth and weaken demand for oil.
“Oil leads the rand,” said Nedbank technical analyst Mehul Daya.
“60% of the movement in the rand can be explained by changes in the oil price since 1990.”
Since 2016, oil has recovered from about $28 to $68 a barrel. This supported rand strength against the dollar from a level of above R16 per US dollar to the current spot price of under R12, according to Nedbank.
“The current oil price implies a fair value for the rand of 11.70 against the US dollar, which is very close to where we are currently trading,” Nedbank analysts Daya and Walter de Wet wrote in a note to clients.
Investor expectation for lower oil prices may weaken the South African currency by as much as 5.9%, they said.
“Notably, using these forecasts implies that the fair value for dollar/rand will likely be in the range of R12.22 and R12.44 over the next two quarters.”
Read: Trump’s trade war could push the rand above R12 to the dollar
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