The path ahead looks challenging for South Africa\u2019s rand, if oil prices are anything to go by.<\/p>\n
Concern that US President Donald Trump\u2019s measures will trigger a trade war may hamper global growth and weaken demand for oil, according to Nedbank technical analyst Mehul Daya.<\/p>\n
“Oil leads the rand,” said Daya. “60% of the movement in the rand can be explained by changes in the oil price since 1990.”<\/p>\n
Talk of tit-for-tat tariffs has already affected the rand. The South African currency led emerging-market losses Wednesday and was down 0.8% to 11.90 per US dollar as of 14:43 in Johannesburg.<\/p>\n
The yield on rand-denominated bonds due December 2026 jumped seven basis points to 8.09%. Johannesburg\u2019s equity benchmark tumbled 2.3% as escalating tensions between the U.S. and China dragged emerging markets lower.<\/p>\n
\u201cIt\u2019s all due to those trade wars and a lot of uncertainty,\u201d said Marius Grobler, a trader at Unum Capital. \u201cInvestors are seeing a lot of fear on the market.\u201d<\/p>\n
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.<\/p>\n
\u201cThe 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,\u201d Nedbank analysts Daya and Walter de Wet wrote in a note to clients.<\/p>\n
Investor expectation for lower oil prices may weaken the South African currency by as much as 5.9%, they said.<\/p>\n
\u201cNotably, 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.\u201d<\/p>\n