The rand has rallied to its strongest point in almost 20 months after an announcement by the US Federal Reserve that it will raise interest rates.<\/p>\n
Following the announcement the rand rallied to its strongest level against the dollar in almost two years, to R12.72, having made gains overnight as the market anticipated the Fed’s move.<\/p>\n
The rand last traded below R12.80 in August 2015.<\/p>\n
The Fed hiked rates by 25 basis points on Wednesday, saying that the\u00a0outlook for the US has improved, and the country’s\u00a0prospects to create jobs are also looking better.<\/p>\n
In its most recent jobs report, the US economy added 235,000 jobs, while the unemployment rate fell to 4.7%.<\/p>\n
Economists expect at least two more rate hikes for the US in 2017, which will undoubtedly have an impact on the local currency.<\/p>\n
In a note to investors, research analysts at Nomura warned that while the economic fair value of the South African rand is between R11.50 and R12.00, investors should not expect the rand to reach or stick around those levels.<\/p>\n
Along with external influences such as Fed hikes and trade policies will have an impact on the local currency – low growth, high unemployment and political troubles in South Africa are significant risk factors which will ultimately shape the rand’s trajectory for the rest of the year.<\/p>\n
Factoring the Fed hikes, including the two that are expected to lie ahead in 2017,\u00a0Nomura holds that the rand is likely to end the year closer to R15.50 to the dollar, with the ANC presidential election having one of the bigger impacts.<\/p>\n
By 13h00, the rand was trading at R12.74 to the dollar.<\/p>\n