Robert Brand

The rand’s more than 3 percent slump this year has surpassed the expectations of its biggest bears and left it the most overstretched in a decade.

The rand is set for a rally to R10.55 to the dollar by the end of March, from about R10.83 now, according to the median forecast in a survey of analysts tconducted on Friday. It touched a five-year low of R10.961 last Thursday, pushing it beyond Lloyds Banking Group’s first-quarter prediction of R10.90, the most bearish of 27 forecasts in the survey.

A technical indicator known as the relative strength index has risen to the highest on a quarterly basis since September 2002, signalling the rand has fallen too far.

“A lot of negativity is already priced into the rand and it’s looking very extended,” Mohammed Nalla, the head of strategic research at Nedbank, said on Friday. “You’d have to be quite brave to put up a speculative position” betting on further declines.

A reduction in the US Federal Reserve’s unprecedented monetary stimulus programme, which has pumped money into the global economy and boosted emerging market assets, is weighing on the rand, just as labour unrest at platinum mines threatens to curb output.

Any gains would be supported by an improvement in South Africa’s economic growth, which strategists expect to reach 2.8 percent this year, compared with 1.8 percent in the 12 months through the third quarter of last year.

The rand’s quarterly relative strength index rose to 72 on Monday, above the threshold of 70 that may suggest a rebound.

The stochastic oscillator for the rand-dollar exchange rate rose to the highest level since it hit 91 on November 12 last year, after which the rand rose 3 percent in the following 10 days.

This indicator, which measures the velocity of a security’s price movement to identify overbought and oversold conditions, stood at 89 on Monday. The rand was bid at R10.8287 a dollar at 5pm yesterday, just 0.71c stronger than a day earlier.

Ion de Vleeschauwer, the chief dealer at Bidvest Bank, said on Friday: “From a technical perspective the rand is certainly a bit oversold. There is room for a correction.”

The Reserve Bank might be forced to raise interest rates if a disorderly decline in the rand threatened to fuel inflation, Sean McCalgan, the head of real-time research at ETM Analytics, said.

But Absa currency strategist Michael Keenan said any recovery in the rand might be short-lived, given South Africa’s reliance on foreign investment to finance the current account shortfall, funds that are drying up as the Federal Reserve tapers its monthly bond purchases. – Bloomberg