In the first half of the year, the rand benefited from high commodity prices that lifted the current account into surplus. Improving fiscal metrics and a hawkish tilt at the central bank also helped. The market remains heavily long rand, according to US Commodity Futures Trading Commission data, leaving the currency at high risk of a selloff as conditions change.<\/p>\n
\u201cEven more concerned by recession fears could be the crowded positions in popular non-oil commodity names like South Africa,\u201d Bank of America Corp. strategists led by David Hauner wrote in a note to clients.<\/p>\n \u201cThey won\u2019t escape tightening financial conditions, recession fears and de-risking, even if the long-term fundamental picture is likely to remain supportive.\u201d<\/p>\n While money managers including JPMorgan Chase & Co and Deutsche Bank AG say emerging markets are well-positioned to weather an economic slowdown, high-yielding currencies tend to buckle as capital flows head for havens like the dollar. South Africa could be particularly hard-hit as demand for the country\u2019s raw-material exports declines, curbing a vital source of foreign exchange.<\/p>\n Not coincidentally, the rand\u2019s drop in recent weeks has tracked a slump in prices of industrial metals.<\/p>\n The rand is down 3.3% this half, reaching a 20-month low of R16.96 per dollar on Friday. The Bank of America strategists see it extending the decline to R17.20 per dollar.<\/p>\n While a global recession could weigh on oil prices, which would benefit energy importers like South Africa from a balance-of-payments point of view, that\u2019s only half the story, according to Nedbank Group Ltd.<\/p>\n Lower oil prices help curb inflation, but they\u2019re also a drain on dollar liquidity globally, boosting the greenback and weighing on emerging-market currencies as financial conditions tighten and funding costs rise, according to Nedbank.<\/p>\n \u201cThe relationship between oil and the rand takes the shape of a smile, with a \u2018sweet spot,\u2019 or inflection point, where the level of oil or the underlying economic conditions represented by oil are optimal for the currency,\u201d Nedbank analysts including Reezwana Sumad said in a note to clients. \u201cA lower oil price suggests a weaker rand exchange rate; vice versa for a higher oil price.\u201d<\/p>\n And while domestic positives for South Africa thus far outweighed the negatives, that is changing. Deepening power outages that will weigh on economic growth have already caught rand bulls\u00a0off guard<\/a>.<\/p>\n Not all the bulls have given up. The selloff could abate if China\u2019s economy recovers strongly and the South African Reserve Bank follows through on its promises of aggressive policy tightening, according to Societe Generale SA.<\/p>\n \u201cWe see the recent sell-off in ZAR as overdone, driven by accumulated negative news on the domestic and external fronts,\u201d said Marek Drimal, the London-based lead CEEMEA strategist at SocGen. The lender sees the rand at 15 per dollar by year-end. \u201cIn our view, the rand is likely to recover in the second half of 2022 on the accelerated tightening by the SARB and the expected recovery in China.\u201d<\/p>\n![\"\"](\"https:\/\/businesstech.co.za\/news\/wp-content\/uploads\/2022\/07\/Rand-1.jpg\")
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