Chart: Rand looks too expensive

Mixed denomination rand currency banknotes. File photo

Mixed denomination rand currency banknotes. File photo

Published Jun 26, 2024


By Mikhail Liluashvili

Chart of the day: EMFX supported rand appreciation during Ramaphoria. This time the global backdrop is likely to be more negative. DA/ANC tensions do not help either. Source: Bloomberg, BofA Global Research

Political Dynamics: The instability within the ANC/DA coalition is a critical factor contributing to the anticipated weakening of the Rand. With the upcoming US Presidential debates on June 27th, the risks to emerging market forex (EMFX), including the rand, are heightened.

Comparative Analysis with Ramaphoria: Unlike the robust appreciation of emerging market markets witnessed during Ramaphoria, current conditions suggest a weaker performance. This analysis provides a comparative perspective that is essential for understanding the evolving market dynamics.

Significant Drivers: Emerging market forex is identified as a major driver of dollar against the rand with a beta greater than 1. Even if political stability is maintained, further rallies in both bonds and forex are limited.

Market Strategy: We recommend paying forward rate agreement 6x9, with no expected rate cuts this year, and remaining long on ASW (asset swop) spreads due to tangible improvements in electricity supply and consumption.

Mikhail Liluashvili is a Global EM Macro Strategist/Economist at Bank of America