Rand seen firmer in a year

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Johannesburg - South Africa's rand will firm a bit against the dollar towards the end of next year, then face turbulence before the US Federal Reserve starts cutting back its monetary stimulus, a Reuters poll found on Wednesday.

The survey of 30 currency strategists and analysts conducted this week predicted the rand would strengthen almost two percent to 10.20 per dollar in 12 months.

The rand was trading near three-week lows on Wednesday at 10.40.

But the Fed is expected to start winding down its quantitative easing (QE) in a few months, and forecasters are predicting some short-term volatility.

They predict the rand will rise to 10.225 per dollar in a month, then fall to 10.30 in three months.

“Most are expecting some QE-tapering related weakness in the first quarter, but it will be short and sharp and not as bad as seen in August and September,” said Christopher Shiells of Informa Global Markets.

More US primary dealers now expect the Fed to scale back its economic stimulus before March, after October jobs numbers and other data pointed to a healthier US economy.

The rand fell the most this year from May to August, after the Fed suggested it would soon start tapering off its monetary stimulus.

It touching its weakest level for the year at 10.51 in late August, in a broad emerging market currency sell-off.

But the Fed surprised markets by not moving in September.

Still, Shiells said that bets were the rand would strengthen towards the end of the year along with other similar currencies.

Eventual expected interest rate rises from their 40-year low of 5 percent by the South Africa Reserve Bank in 2015 may also underpin the currency.

South Africa's third-quarter current account deficit expanded to 6.8 percent of GDP from a revised 5.9 percent in the second quarter, the widest since 2008, lending more support to a pessimistic view on the currency.

Some FX analysts expect the rand to test levels last seen in late October 2008, shortly after the collapse of US investment bank Lehman Brothers and the start of the financial crisis. South Africa's economy entered a recession then.

Barclays analyst Mike Keenan added that although the bad news had already been priced into the currency, “we still do not feel that there are any strong catalysts for a sustained rand recovery.”

He added that South Africa's fundamentals remained shaky with structural current account and fiscal deficits not likely to improve in the near future. - Reuters

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