The South African rand has shown its volatile side in recent days, after suffering a scorching spell last week, to peak above R15.00 against a resurgent dollar. This week, however, the local unit has sought to recoup some of those losses, in line with broader movements in emerging markets.
The rand is widely considered one of the most volatile currencies in the world, which has been fully exposed for the past six months, showing no clear trend, dipping below R14.00 per dollar in May and June, before weakening above R15.00 in August, then revisiting most points in that range in September, a said the South African Reserve Bank.
“The currency is trading again at pre-Covid-19 levels, and has even revisited pre-Nénégate levels, with the rand hovering around R14.30 to the dollar in early December 2015,” he said. declared during his six months. monetary policy review, Tuesday 5 October.
“The local currency has benefited from record terms of trade and a large current account surplus, as well as very low global interest rates.”
Analysts now believe that a change in global inflation expectations from “transient” to “persistent” will save emerging market currencies a massive sell off in the coming months as central banks consider or forecast rate hikes. short term interest.
A survey of economists from Reuters shows that the rand is expected to be a net beneficiary of this change, with the local currency expected to mark a stronger final quarter of 2021 as it did in previous years.
The poll, conducted between October 1 and 6, shows that the local unit is expected to stabilize around 3% over the next six months at around R14.90 / dollar.
Jeff Schultz, senior economist at BNP Paribas South Africa, said the local currency is likely to hover above R14,000 against the dollar, before depreciating.
The group’s medium-term valuation model shows the fair value of the rand at around R14.00, suggesting a tactical opportunity to be bullish, he said in a research note on Thursday (October 7th).
“This also underlines our bullish forecast of R14.25 for the end of the year. In the long run, however, the normalization of the current account should start to undermine the currency. Therefore, we are witnessing a gradual depreciation of the rand in 2022. “
Bianca Botes, director and treasury partner at Citadel Global, believes the rand could reach R16.00 against the greenback.
Long term amortization
“While the rand typically experiences a stronger period in the fourth and first quarter of each year, this is unlikely to be the case for the fourth quarter of 2021, although the national currency is certainly very volatile and continues to experience periods of decline. strength and weakness marked indefinitely, ”said Annabel Bishop, chief economist at Investec.
“That is, as long as the currency’s fundamentals do not deteriorate markedly (or on the contrary improve markedly), the rand is likely to remain on a long-term depreciating trend, although the chances of credit rating downgrades in November are now reduced. “
Investec forecasts have the local currency at R14.70 against the dollar in Q4 2021, strengthening at R14.55 in the second quarter of 2022.
Sanisha Packirisamy, economist at Momentum Investments, said the rand has outperformed a broad basket of emerging market currencies and commodity currencies since the start of the year. “We do see, however, a possibility of a slight depreciation of the currency in the coming quarters as the US dollar strengthens moderately as commodity prices weaken and domestic growth and fiscal concerns weigh heavily on the outlook to medium. term.
“Nonetheless, the impact of currency on the inflation basket in recent years has moderated considerably due to weaker demand. This, together with credible policy frameworks and good governance of the SARB, has helped reduce the volatility of inflation, ”Packirisamy said.
Momentum Investments has said it expects inflation to average near the midpoint of the 3% to 6% inflation target range over the next three years in the absence of any shocks. monetary, food or petroleum.
“We do not see any immediate pressure on the SA Reserve Bank (SARB) to raise interest rates and therefore see the risks for the first interest rate hike to be oriented towards the first quarter of 2022. We expect to a gradual normalization of interest rates to follow, ”Packirisamy said.
At 1:40 p.m. on Thursday, October 7, the rand was once again trading at the following levels of major currencies:
- Dollar / Rand: 14.84 R (-0.99%)
- Pound / Rand: R20.20 (-1.09%)
- Euro / rand: 17.17 R (-1.20%)
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