The rand has taken us South Africans on quite an emotional journey of late. Of course, it’s not the currency’s fault, but rather the fault of those who are so strongly connected to it (yes, yes, Zuma is just one element to blame.)
But its recent rise in strength has given us all a little more hope for the future, if only for a fleeting moment. Business Tech lays it down:
On Monday the rand was trading at R12.68 to the US dollar, a stronger position than the R12.72 high it reached on Friday (17 March) after the US Federal Reserve took a decision to hike rates softening the dollar and pushing investors into other markets.
Today, right now, the rand is sitting at R12.52 to the dollar, so at this rate is should be sitting at around R12.43 in the next three or four days, right?
Perhaps. There are a few factors at play:
On the one hand, the rand is holding its strongest position against the dollar in 20 months, gaining value after the US Federal Reserve made a decision to hike rates last week.
In fact, it turns out that the “sentiment around the rand and its performance over the past 12 months has improved significantly, out-performing over 30 markets.”
Also, risk measures in South Africa – from volatility to credit-default swap prices – are falling and analysts’ forecasts are at their least bearish (i.e. most positive) in 18 months.
Here’s a graph of the rand’s performance from Bloomberg, including a depiction of Table Mountain (kidding, it’s just representing stability).
However, although the graph may be heading downwards (and thus the rand increasing in strength), things aren’t all positive:
While investors are hoping for the best, they’re still preparing for the worst, with options to sell the rand versus options to buy climbing by a percentage point – meaning there is an increase in investors hedging against the rand.
This sentiment is not without reason, as some analysts have pointed out that the market is painting an overly positive narrative around South Africa with little data to back it up.
According to research analysts at Nomura, South Africa’s ‘positive story’ in the markets is all wrong, and does not take into account the incredibly volatile political situation – where the economy hangs under an axe of a couple of ill-placed moves by president Jacob Zuma – and the country has shown little in the way of growth, and bringing down unemployment.
Nomura holds a more bearish view of South Africa, expecting the rand to start weakening again as the year progresses, and the country’s politics plays out.
Tough situation to be in, especially when you are having to deal with international business – which is why it’s important to employ a company like Currencies Direct, who have a handle on international markets so you can get the best out of dealing with foreign currencies.
Between those positives and those negatives, Currencies Direct’s understanding of the market allows you to take full advantage.
They assist with everything, from forward contracts to managing foreign exchange exposures and risks – sounds lovely, doesn’t it?
Indeed, but R6 to the dollar sounds a whole lot better.
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