Analysts don’t expect geopolitics, commodity prices and trade conditions to favour the local currency this year. Investec Bank chief economist Annabel Bishop said that US Federal Open Market Committee has signalled even higher US interest rates in the year ahead.
“If these signalled 2019 US rate hikes materialise, they will likely put pressure on the rand to depreciate, particularly in the second and third quarter of 2019, if South Africa does not match the quantum of 2019 US hikes, should they occur,” Bishop said. “But South Africa is unlikely to hike by as much as the US and so the rand could see further depreciation in 2019.” The South African Reserve Bank at the end of 2018 raised interest rates by 25 basis points to 6.75percent.
The rand endured a roller coaster of a year after breaching R12 against the dollar early in 2018 as “Ramaphoria” swept through the markets. However, the local currency was set to close the year on a much weaker footing, dragged down by geopolitics and the trade spat between the US and China.
Andre Botha, a senior currency dealer at TreasuryOne, said the US-China trade tensions would be front and centre this year.
“On the local front, we have to look no further than the 2019 elections for a lot of volatility in the rand and the possible political ramifications that the vote will have,” Botha said. “Rating agencies and the state-owned agencies will still be in focus, which will make the South African risk basket quite an interesting one next year and we will be in for an up and down ride.”
Mehul Daya and Walter de Wet, strategists at Nedbank, in a note said South Africa was sensitive to external headwinds through capital flows, and commodity prices posed a threat to the rand. “In this, we expect the rand to trade in the R14 to R15 range for most of the year. While bouts of weakness and strength beyond this range should be expected, they are unlikely to be sustained,” the two said.