HomeNewsS. African yields seen giving rand modest support

S. African yields seen giving rand modest support


JOHANNESBURG- Global economic uncertainty is set to keep South Africa’s rand trading in a narrow range over the next 12 months, although the prospect of rising interest rates could lend some support to the currency, a monthly Reuters poll showed on Wednesday.

The poll forecast a steady path for the rand against the dollar for a second straight month, with the median prediction from 34 analysts and strategists showing the currency firming to 7.70 in one month, 7.65 in six months and 7.60 at the end of March next year.

The rand was at 7.78 per dollar earlier on Wednesday.

“Working against the rand is what could be termed the next stage in the currency war, a tightening of monetary conditions in the U.S. and a slowdown in the Chinese economy, as well as the euro zone slowdown,” said Christopher Shiells, an emerging market analyst at Informa Global Markets in London.

“However, South African yields remain attractive to international investors so capital inflows will continue for the medium term.”

As the United States economy improves, the Federal Reserve has backed away from providing more monetary stimulus, which has given the dollar support against the rand.

The crisis in the euro zone has also weighed on the local currency, due to South Africa’s reliance on European trade. Investors are also fearful that China’s slowing economic growth could lessen the demand for South Africa’s commodities.

The rand has gained about 5 percent from the start of the year, but has swung with how much risk global investors are willing to pile on, at times being the best or worst performer of emerging markets depending on how the day’s news is interpreted.

“We are in a risk-on, risk-off environment, but to base our forecasts, we take the view that there is no value in buying or selling the rand because the overall macroeconomic story and the story in South Africa is not supportive,” said Murat Toprak, emerging markets strategist at HSBC in London.

The central bank has kept the repo rate at a historical low of 5.5 percent after cutting it by 650 basis points in two years to November 2010 in an effort to boost a sluggish economic recovery.

The latest Reuters Econometer expects rates to rise 100 basis points by the end of next year, starting in the first quarter of next year.

“We have no change in policy rates for the entire year, we do not expect any hike for entire year, so the overall combination is supportive for the rand,” added Toprak.-Reuters

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