There may be some good news in store for the rand

The economy sank into a recession in the first half, raising concern that tax revenue will lag government forecasts and strain fiscal targets. Political uncertainty surrounding land reform and mining rules also unnerved some investors.

“Our view also takes into account SA’s weak growth backdrop and the inflation cycle, as well as the challenging global environment,” Keenan said. Other risks to his forecast are rising US rates and an escalation in the US-China trade war, with SA’s reliance on commodity exports making it particularly susceptible to a slowdown in global growth, he said.

The rand gained 0.7% Thursday to R14.7665 per dollar, after declining for four straight days as US treasury yields climbed to the highest level since 2011. With foreign investors holding about 40% of government bonds, even after dumping R55.7bn worth of the debt in 2018, SA is vulnerable to capital flight as higher US rates attract money to the dollar.

The odds on the rand reaching Keenan’s target of R14.25 by year-end are 73%, according to Bloomberg calculations based on the price of options to buy and sell the currency.

With Wei Lu

Bloomberg