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The SA Daily 27 January 2020

The rand's road in January

Shireen Darmalingam

  • Though the rand and emerging market (EM) peers rallied after encouraging US-China trade developments early in January, these currencies have since lost ground to the dollar. The Brazilian real, Chilean peso and Hungarian forint have shed over 3% in January.
  • The rand is down 3.2% for January, compared to a 2019 gain of 2.9% and a loss of 13.9% in 2018. It is at R14.44/$ now, just above its 50-day move average (R14.43/$) but below its 100-day and 200-day moving averages (R14.66/$ and R14.60/$ respectively).
  • The rand seems set to shift sideways in the short term ahead of several upcoming key events. There’s the State of the Nation Address early in February, with little impact on the rand foreseen; the Budget 2020 could, however, see rand weakness should further fiscal deterioration come to light. There’s also the risk of a downgrade by Moody’s in March, now largely priced in. The rand would no doubt weaken, temporarily though, because of the subsequent WGBI expulsion after a downgrade.
  • We pencil in modest nominal depreciation in the trade-weighted rand in the medium term from 2019 average levels. Our forecast is for R14.60/$ by year-end, with further weakness, to R14.90/$, in 2021. With the rand facing so many hurdles, action from government regarding economic and policy reforms is clearly pressing and now long overdue.

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