What is the future for Rand?
Despite the weakening dollar, South Africa’s rand strengthened as the central bank maintained its main interest rate at a historic low.
This afternoon, the rand was trading at 14.6700 to the dollar against the previous closing of 14.6700, a 1.1 percent increase.
A rate of 3.5 percent was anticipated to be maintained by the South African Reserve Bank (SARB), but some traders saw the bank’s Quarterly Projection Model (QPM) as a signal that a future rate rise was imminent.
Economic and macro analyst Carmen Nel of Matrix Fund Managers argued that the Monetary Policy Committee’s statement was hawkish enough to allow the SARB to act should it be necessary.
Against a basket of other currencies, the safe-haven dollar (.DXY) fell by 0.5 percent.
Both the All-Share index (.JALSH) and the Top-40 index (.JTOPI) closed higher, with the All-Share index rising by 1.1 percent and the Top-40 index rising by 1.2 percent.
The yield on the government’s benchmark 2030 bond rose by six basis points to 9.145 percent, putting it in the red.
As of this writing, the South African rand is trading over R15.00 versus a resurgent dollar, after a tumultuous week. The local unit, on the other hand, has sought to recoup some of those losses this week, in line with moves in the wider emerging market.
One of the world’s most volatile currencies, the South African rand has shown no obvious pattern over the previous six months, plunging below R14.00 in May and June, before strengthening to over R15.00 in August and then returning to the same range in September, according to the Reserve Bank of South Africa. According to some analysts, the value of the Rand will rise. As a result, the number of persons trading with Rand in the Forex market is growing. Typically, investors who engage in FX trading look for qualified FX brokers who can assist them in forecasting value fluctuations. One of the simplest methods for investors to locate the proper broker is to read FX broker reviews, such as the FP Markets review, where they can learn more about the brokerage, how it operates, the services and tools that the firm provides. It is also worth noting that record trade terms and a significant current account surplus, as well as low global interest rates, have helped the local currency.
As central banks ponder or implement interest rate rises in the near future, analysts think that a change in global inflation expectations from “transitory” to “sticky” will avert a currency sell-off for emerging market currencies.
In a Reuters survey, experts predicted that the rand will benefit from this shift, with the local currency anticipated to rise in the fourth quarter of 2021 as it has in the past.
Future Of Rand
It is expected that the local currency would remain over R14.00 versus the dollar before depreciating.
“The group’s medium-term valuation model implies a tactical opportunity for being optimistic,” Jeff Schultz, the senior economist said in a research report. “The fair value of the rand is approximately R14.00.”
Furthermore, our projection of R14.25 at the end of the year is reaffirmed by this development. Even if current account normalization continues at a steady pace, it is expected to have an impact on the currency.
For Q4 2021, the rand is anticipated to suffer a worse time than usual, but the local currency is expected to be extremely volatile and witness moments of considerable strength and weakness for the foreseeable future.
Even if fundamentals continue to worsen (or improve), the rand is likely to stay on a long-term depreciation trend. However, the likelihood of November’s credit rating downgrades has decreased.
In light of the weakening US dollar, falling commodity prices, and domestic economic and fiscal worries, we do see some room for modest currency depreciation in the coming quarters.
In the absence of currency, food, or oil price shocks, experts predict inflation to trend close to the 3 percent to 6 percent goal range over the next three years.
The Impact Of Rand Depreciation
Bank of South Africa chief executive officer Mr. Tucker spoke on behalf of his organization.
If the rand depreciated rapidly, each bank would have seen both favourable and bad effects. In the fourth quarter of 2020, the devaluation of the rand may have had a net positive effect on certain banks. However, the depreciation of the rand had a significant negative influence on banking as a whole.
For the sake of this study, we combined the data from the six largest South African banks. During the final quarter of 2020, and particularly in December, foreign currency trading generated bigger income than in the rest of the year.
For October, R212 million was earned, followed by R189 million in November, and R461 million in December, for a total of R461 million. There are no IT, telecommunications, or human expenditures included in those gross sales. When the rand declined, the margins widened and the volatility increased. Pressure on the bond and interest derivative markets resulted in losses as a result of these causes.
The average monthly revenue for the first nine months was R148 million, which is less than 0.01% of the total turnover. An average monthly turnover of R288 million is just 0.016 percent of the market’s total turnover. Foreign currency trading revenues are compared to the banks’ overall income in a second comparison. For the first nine months of the year, the six big banks made 4.2 percent of their total income from forex trading, 4.8 percent in October, 4.5 percent in November, and 8.3 percent in December.
