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The SA Daily 05 July 2019

Rand ruled by all risks

Shireen Darmalingam

  • The weak rand of the last two decades can be ascribed not just to domestic but also to international risk factors. Already in 2000, it had lost 28%. Then, after 9/11 in 2001 in the US, EM currencies dropped sharply, and the rand shed 58% in just that year. Only the TRY took more damage than the rand at that time.
  • As global risk appetite improved, though, the rand firmed. But, then the Global Financial Crisis (GFC) came in 2008/9, sparing only the CNY.
  • SA’s idiosyncratoc risks such as Nenegate in 2015 and the cabinet reshuffle in 2017, as well as sovereign downgrades, have now seen the rand above R12/$ since 2015. Thereafter, SA elections in May and Eskom’s economic impact kept the rand under pressure in H1:19. For some years now, subdued business confidence has done little to support the rand.
  • Nevertheless, this year rand has gained 2% to the USD. We forecast it firming to R13.80/$ by December, and still gaining ground thereafter as business sentiment will likely improve. However, much will depend on policy reforms in H2:19.
  • Recently, the US and China likely diffusing their trade dispute has supported the rand. It also found support from expectations that the Fed might cut rates for the first time in over a decade.

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