Outlook for the rand has darkened, Investec says
The US-China trade war, as well as SA’s domestic political uncertainty is weighing on the rand, with SA’s largest asset manager, Investec, expecting the rand to weaken an additional 1.8% in the fourth quarter when compared to its previous forecast.
Investec now expects the rand to average R14.15/$ in the fourth quarter from R13.90 previously, with the local currency still expected to come off current weaker levels due to expected interest-rate cuts in the US.
“We continue to believe that the rand will remain volatile, and have revised down the expected case forecast for a somewhat more depreciated level as global trade tensions have worsened, and show little chance of resolving in the near term,” said Investec chief economist Annabel Bishop in a note.
Local political uncertainty is also playing a role, said Bishop, with a lack of resolution to Eskom’s problems and the announcement of the National Health Insurance both negatively effecting the rand.
The rand, which serves as a proxy for other emerging-market currencies, is only the third-worst performing currency over the past 30-days, according to Bloomberg. Its 6.5% loss against the dollar over this period compares favourably with a 9.2% loss by the Brazilian real, while the Argentinian peso has slumped 21%.
Argentina is in the midst of a debt crisis, while Brazil is experiencing devastating fires in the Amazon rainforest.
At 2pm on Tuesday, the rand had weakened 0.2% to R15.313/$, 0.18% to R17.0005/€ and 0.58% to R18.7878/£. The euro was flat at $1.1102.
At this level, the rand would need to firm 7% to reach Investec’s target in the fourth quarter.
Markets continue to price in a series of interest-rate cuts from the US Federal Reserve. On Tuesday afternoon, the bets on a 25 basis-point September cut were 100%, while there is an 11.2% chance of a 50 basis-point cut.
Source: businesslive.co.za
