Rand set for best start in decades

The rand and its emerging-market peers have benefited from a more cautious US Federal Reserve — some analysts now expect the central bank to keep interest rates on hold in 2019 — and optimism that the US and China will strike a trade deal.

The local currency was also among those that were “particularly hard hit” in 2018, which suggests that recent buying by foreigners is “opportunistic rather than fundamentally driven”, says Stanlib chief economist Kevin Lings.

“I think in the short term, the rand can hold on, but it will struggle to maintain that strength for the whole year, especially if portfolio flows ease up a bit, which I do anticipate later in the year, and I think SA’s trade balance will weaken, putting the rand under fairly modest pressure,” Lings said.

The country’s trade balance and current account will probably deteriorate because imports are likely to tick up while the sluggish global economy will weigh on exports, he said.

Moreover, the domestic economy could struggle to gain meaningful traction, particularly since a sudden change in the country’s policy direction is unlikely for some time after the national election.

Lings sees the rand moving back above R14 to the dollar by the end of 2019. More broadly, the risk-on sentiment boosting emerging-market currencies is expected to fade, since the Federal Reserve is likely to lift rates “at least once” in 2019, he said.

Shaun Murison, senior market analyst at IG, said the rand is unlikely to break out of its recent range of between R13.50 and R15 to the dollar until it encounters new “catalysts”.

Locally, those could be the national budget announcement in February, a Moody’s ratings announcement in March, national elections in May, and any firm plans to fix SA’s ailing state-owned enterprises, Murison said.

Investec, meanwhile, expects the rand to strengthen to R13.40 to the dollar by the end of March.

Source: businesslive.co.za