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The SA Daily 12 August 2019

Some room for the rand

  • SA financial assets have been under relentless pressure due to many local and global financial risk factors. The rand is now around R15.25/USD; and, the generic 10-year bond yield was 9.05% last Thursday. The rand nevertheless is still undervalued.
  • Domestically, the rand faces poor economic growth, and a rising risk of further fiscal slippage with a Moody’s negative rating in its wake as a result. There’s been no support either for the rand due the persistent lack of the expected economic reforms as well as the ongoing conflict in SA’s governing party, the ANC.
  • Globally, the trade and technological battle in combination with geopolitical tensions too are negatively affecting all emerging market currencies. In addition, expectations for aggressive Fed cuts receded, which too doesn’t support EM currencies.
  • Nevertheless, predicated on a weaker USD by end-2020, we forecast the rand at R14.00/$ by end-2019 and end-2020. Over that time, a stronger Australian dollar (which we use as a guiding barometer for commodity markets and currencies) is expected. We don’t foresee a particularly powerful global growth slowdown. In combination with possibly impending global currency wars, the rand should therefore see some benefit in the months ahead.

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