While the rand started 2018 on a strong note, recent local and international factors have seen the currency take a knock over the last few weeks.
Trump’s trade war with China and a threat to emerging markets has lead to the rand hovering around the R12.00 mark, while the announcement that government would support land expropriation without compensation saw both the currency and investor confidence take a knock.
In an analysis by UK-based trading website, PoundSterlingLive, analysts from Nedbank noted that the the bulk of the good news on South Africa (including the entrance of president Cyril Ramaphosa) has been priced into the value of the rand, and that the currency will now probably be driven largely by changes in global risk appetites.
“So far, risk appetites have held up reasonably well, buoyed by expectations for stronger global growth and continued recovery in key emerging markets.
“However, risk aversion flared up early in February and again in early March and could easily return, especially if China’s growth disappoints and global commodity prices relapse, geopolitical tensions rise suddenly and uncontrollably, or if US interest rates rise faster than currently anticipated,” said Nedbank.
“Furthermore, those watching the Rand must be wary that local political tensions and policy impasses could also hurt the rand,” it said.
Nedbank forecast the following currency levels by the end of the year:
- Rand/dollar is forecast at R12.75 by the end of the year
- Rand/pound is forecast at R18.05 by the end of the year
- Rand/euro is forecast at R15.60 by the end of the year
In the same analysis for PoundSterlingLive, Absa was notably more positive on the rand, and despite the positivity being priced in, it argued that stronger economic growth should prove supportive to the local currency.
“Many of South Africa’s most significant constraints and challenges will be hard to fix,” said Peter Worthington, a senior economist at ABSA
“Still, the slide in the sovereign’s credit ratings seems to have been stopped for now. We now forecast stronger GDP growth of 1.8% this year and 1.9% for 2019, up by 0.4pp and 0.2pp,” he said.
Absa forecast that the rand/dollar is expected by to fall further over coming months, dropping to R11.00 before the end of June and then rising steadily to R11.30 and R11.50 respectively by the end of the third and fourth quarters.
Similarly it forecast that the rand/pound rate is predicted to fall to R15.29 before the end of June before rising to R15.82 and R16.33 before the end of the third and fourth quarter, respectively.
By 11h05 on Monday, this is how the rand was performing against major currencies:
- Rand/USD – R12.07
- Rand/GBP – R17.22
- Rand/EUR – R14.92