After yet another volatile year for South Africa’s currency, the rand is looking to end 2018 on the front foot, as it continues to make headway against the dollar.
This is according to Bianca Botes, Corporate Treasury Manager at Peregrine Treasury Solutions, who said that political tensions between the US and China around the trade war was giving local markets a narrow window of opportunity.
“While Donald Trump is upbeat about the progress of trade talks with China, President Xi is much more reserved with his optimism,” she said.
The rand kicked off the day (31 December) at R14.42/$, with a move to R14.30 still on the cards, Botes noted.
“Liquidity remains low, however, with very little trading activity. We are heading in to the new year with politics remaining the dominant theme in the currency market.”
The expected range for the currency is between R14.35 to R14.52.
Rand’s performance in 2018
The rand’s performance in 2018 shows a substantial decline, as the upbeat and position response from markets to the change in political leadership eventually gave way to the realities of the state of the economy.
Politics – both local and international – dominated the rand’s timeline in 2018, with the removal of former president Zuma, the subsequent “Ramaphoria”, and land expropriation without compensation being key events on the calendar.
Globally, the Trump vs China trade war, and buckling of emerging market economies (particularly Turkey) and Brexit were also strong influencers on the rand this year.
The rand started 2018 at R12.37 against the dollar, following president Cyril Ramaphosa’s victory at the 2017 ANC conference.
The currency hit its strongest point in February – R11.55 – after Ramaphosa secured the presidency – ousting former president Jacob Zuma. This marked the height of “Ramaphoria”, with markets buying into the narrative of the “new dawn” and a return to growth for South Africa.
However, the local unit soon began to weaken again, as the aforementioned political events came into play – and the reality of South Africa’s economic problems set in.
The rand hit its weakest point in September, closing at R15.41 (but going as high as R15.60) following confirmation that the country had entered into a technical recession. This was also amid an emerging market crisis.
The rand has managed to strengthen again in recent months as the country moved out of recession, while the last quarter brought more consumer spending, and transparency about holes in the budget.