Why analysts expect the rand to strengthen
Analysts believe the rand is bound to make a comeback after it weakened through R14 to the dollar on Friday for the first time since November 2017, as a plummeting Turkish lira caused widespread contagion among emerging-market currencies.
The rand touched R14.15/$ as the lira went into free fall, tumbling more than 18% against the dollar at one point, after President Donald Trump tweeted that the US would double tariffs on Turkish steel and aluminium.
SA’s high bond yields, relatively high interest rates and prudent fiscal policies have acted as a buffer for the rand, with market risks coming from low GDP growth and growing sovereign debt.
“We had nothing really negative coming out of SA before the tumble on Friday,” said Umkhulu Consulting analyst Adam Phillips. “Should things calm down, the rand will be one of the first currencies to benefit.”
During the middle of last week increased business confidence numbers for July, as well as positive reaction from Eskom unions to the power company’s revised pay hike offer, supported the rand. This was followed by President Cyril Ramaphosa’s speech on National Women’s Day when he calmed fears over land grabs, saying expropriation would be done in a fair and orderly manner.
“However, investors woke up to an almost nightmarish situation on Friday, as the lira tumbled to record lows against the dollar, dragging the rand down with it,” Phillips said.
GT247.com analyst Barry Dumas said some strength in the rand was likely after Friday’s sharp fall.
“But as long as emerging-market currencies are under pressure, and the dollar strengthens, the rand will continue to weaken in the short term.”
Taking the Turkish situation into account, the rand has not done that badly in 2018. It is down 14% to the dollar, while the lira has lost more than 70% to the greenback.
Source: businesslive.co.za
