The SA Daily
15 March 2019
DXY defies global growth
Shireen Darmalingam
- The trade-weighted dollar has been firm, defying the various economic stress factors of US-China trade, slowing global growth, and the Brexit tangle. Emerging market currencies, as the rand, have thus borne the brunt of dollar strength. The trade-weighted dollar has gained 0.5% since January, while the rand has lost 0.8%. Still, the dollar has not recouped its 2017 losses.
- Other EM currencies too have lost ground, with the ARS shedding near 8% since January.
- The dollar may well stay firm in Q2:19. However, it might weaken into year-end, perhaps even sacrificing the gains made thus far this year.
- While dollar weakness would not necessarily imply substantial rand strength on a trade-weighted basis, a weaker dollar would most likely imply higher commodity prices in dollar terms — which would then support commodity currencies such as the rand.
- We still see the rand as undervalued, expecting it to firm to R13.40/$ by December. Nonetheless, there could be bouts of weaknesses due to local risks such as the SA national elections in May, as well as global risks.
- We expect the rand to be buoyed by much-needed policy reforms after the elections in May, firming in H2:19.
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