The rand has been heavily affected by world economic growth and market volatility, according to the results of a Bloomberg poll announced on Monday. Karen Sandison/African News Agency (ANA)

CAPE TOWN – The rand has been heavily affected by world economic growth and market volatility, according to the results of a Bloomberg poll announced on Monday. 

The survey, which found that these were the biggest macro issues affecting the domestic currency, captured the opinions of more than 160 local bankers, chief executives, chief financial officers, corporate treasurers, foreign exchange and hedge fund executives, who attended Bloomberg’s Foreign Exchange Summit FX18. 

The programme featured an overview of the South African economy and a keynote address by Daniel Mminele, the Deputy Governor of the South African Reserve Bank.

The survey reported that 37 percent of respondents said global economic growth and market volatility was the largest macro factor affecting the rand today, while 31 percent said it was foreign investment in South Africa. As few as 21 percent said US monetary policy or trade fiction and 11 percent said tariffs impacted the domestic currency.

On the biggest local issue expected to affect the rand in 2019, 54 percent of participants said it was South Africa’s political environment, 22 percent said that they expected the rand to be influenced by the SA Reserve Bank’s interest policies, 17 percent said unemployment and 7 percent cited the mining industry, according to the report.

Broad range

Nearly three-quarters of the participants said they expected the dollar/rand exchange rate to end 2019 within the broad range of R12 to R15. At least 26 percent said the dollar/rand exchange rate would be firmer than R12 and 5 percent said it would be weaker than R15.

The Reserve Bank’s Mminele said: “Continued tightening in global financial conditions, a change in investor sentiment towards emerging markets, escalating trade conflicts and geo-political developments, together with some idiosyncratic risks, remain the key risks to the local currency.”

The rand will trade near the level of R13.40 to the dollar by the end of next year, said Standard Bank economist Elna Moolman, adding that the expectation is partly based on a dollar story, but also on the assumption that we will see political and policy improvements to support a stronger currency. Moolman said the next big local events that could influence the rand are the budget, the response from Moody’s and then elections.

Investec Bank chief economist Annabel Bishop said US monetary policy was placing possible additional pressure on the rand, especially as South African monetary policy is unlikely to keep pace with the expected rate and magnitude of interest rate hikes in the United States.

Old Mutual Investment group head of economic research Johann Els said that an improvement in the country’s political environment could see the rand strengthen significantly, if it occurs against a backdrop of global economic rebalancing and the expectation of the dollar weakening toward the end of 2019.

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Rosy November

Meanwhile commenting about the rand’s recent moves – and not as part of the Bloomberg of the survey – Dynamic Outcomes head market analyst and director James Paynter said a rosy November suddenly seemed a long time away. 

“A battling rand, the plague of Eskom, land expropriation and political disunity continue to hurt the local currency … not to mention the Trade War resolution seemingly capitulating!

“On the other side of the scale, the was some positive news on manufacturing and more. But this was not enough, as the rand spiraled in the latter half of the week,” said Paynter.

Paynter said there were a lot of variables as we go into this week. The ongoing interesting situations globally were all triggers for moves:

  • Brexit … the parliamentary vote in the UK is upcoming this week. This will be huge for the Pound.
  • Trade war tensions – these have been plaguing the markets, and hopefully will settle down a bit this week!
  • And locally, of course, it is Eskom, load shedding, and land reform.

Then we get into the economic events!

  • The ECB is making a call on their interest and deposit rates, and there are some speeches and stats due to come out from the US side of the pond.
  • Locally, the biggest event is SA's inflation rate figures. This has been on the rise the last few months and is of grave concern to SARB. Many will be watching this closely...

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No holiday for the markets

Senior currency dealer at TreasuryONE, Andre Botha, said: “It seems that December will not be a time for a holiday in the markets. We saw the rand on a wild rollercoaster on Friday, as the US non-farm number pushed the rand below the R14 level but with the US equity sell-off causing the risky assets to lose most of their gains in evening trade with the rand ending the week at R14.18.”

Botha said there was still some tensions in the market regarding the US-China truce and that had also caused investors to jump ship out of riskier assets. This caused a bit of panic in so far that there were talks of the impact that the trade tensions could have on global growth. This includes possible recession talk and this has spooked the market a little.

“We expect the rand to play yo-yo this week with the main force being the US and the momentum after the bad non-farm print and the fallout out from the trade tensions between China and the US will cause a bit of a tug-o-war for risky assets like the rand. 

“We also have US CPI out on Wednesday which could throw a spanner in the works should the number surprise,” said Botha.

Additional information sourced from Bloomberg.

BUSINESS REPORT ONLINE