Rand to stabilise towards year-end

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IOL world currency1 Graphic: Renjith Krishnan.

South Africa's rand should firm against the dollar towards the end of the year and rise into 2013 so long as the crisis in major trading partner the euro zone is resolved, a Reuters poll found on Tuesday.

The survey of foreign exchange strategists showed the rand strengthening slightly from its current level around 8.14 per dollar to 8.00 in six months, before firming almost 4 percent to 7.8 in 12 months.

The currency has recouped most of its losses since the start of the year.

Although South African interest rates are at record lows, there is still a wide differential between the near-zero rates seen in major rich world economies, a gap that strategists reckon will steadily boost the rand.

South Africa's prime rate is at 9.0 percent and the repo rate is at 5.50 percent.

The rand' s outlook really hinges on events in the euro zone, South Africa's largest trading partner, after leaders there took the first steps towards a banking union and agreed to help Spain and Italy lower dangerously high borrowing costs.

But the latest economic data suggest no upturn in fortunes in Europe and business surveys from the United States look ominous, which may limit the extent to which the rand can appreciate from here.

“The rand is in a way but cheap compared to its macro-fundamentals, but I do not think that there is a big potential (for strengthening), so what I am expecting is some sort of normalisation,” said Murat Toprak, strategist at HSBC.

Investors have been shorting the euro in previous months, but now trimming those positions, which would bode well for the rand when focus shifts to the US growth and the likelihood of more bond purchases.

South Africa's current account gap also widened more than expected in the first quarter of the year as exports slumped to Europe, pressuring the rand.

Since the start of the year, Reuters currency polls have predicted the rand to follow a narrow zig-zag path.

Now analysts are for the second straight month clear on the direction, predicting the currency might not stage a comeback this year, but should rebound in the new year.

So the rand has had a storied year with a huge sell-off in March, punters of a stronger rand have been disappointed and dwindled in numbers, the bears have been vindicated for now. - Reuters


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