Rand’s recent slump is over, risks priced in – poll

The recent slump in South Africa’s rand is over and the currency will hover around current levels in the coming year as investors shrug off credit rating reviews and domestic elections, a Reuters poll found.

At the time of the last poll in early February the rand was up around 7% on the year and forecasters then said it would only lose about half those gains in the next 12 months.

But the currency shed the whole 7% last month as concerns about the US-China trade war and power blackouts cast a shadow over South Africa’s economic prospects.

So in a February 28-March 5 poll of 30 foreign exchange strategists, the 12-month consensus was slashed from February’s. The rand is now forecast to be at 14.20 per dollar in a year compared to 13.85 predicted last month.

Heavily traded, the rand often either leads or lags the pack of emerging market currencies in bouts of market volatility due to changes in global risk sentiment rather than investors’ view of local fundamentals.

“The rand would probably continue to swing up and down until the elections in May,” said Rafiq Raji, managing director and chief economist at Macroafricaintel in Lagos.

On Tuesday, the rand firmed after data showed the recovery from a recession in the first half of 2018 continued in the final quarter. It later retreated, however, and was trading around 14.3 per dollar on Thursday.

Official data showed South Africa’s current account deficit narrowed to 2.2% of gross domestic product in the fourth quarter, a good omen for the local currency, and a Reuters poll found economic growth was expected to accelerate.

But fiscal constraints and weak growth were highlighted in the budget last month amid efforts to save power utility Eskom, exposing the limited room President Cyril Ramaphosa has to fix the economy ahead of an election in May.

Ramaphosa’s ruling African National Congress will face stiff competition from other political parties looking to increase seats in parliament.

“Unless something highly negative happens, like a big Ramaphosa scandal, I think most of the envisaged risks have been priced in,” said Raji.

Business confidence fell to a five-month low in February.

Investors are also awaiting a review of South Africa’s credit rating by Moody’s, the only major agency that still assigns it investment-grade status, at the end of this month.