Rand likely to gain just 2% in 2018 – survey

The rand is expected to trade just 2% higher in a year as local economic reforms kick in and support the currency, but it may be held back by a potentially more hawkish US Federal Reserve, a Reuters poll found.

The survey of 35 currency strategists, conducted in the past three days, suggested the rand would be 2% stronger from Wednesday’s R14.80 in 12 months, at R14.50 per dollar.

“Once the Fed signals the end of the tightening cycle at some stage next year, we expect the rand to embark on a [firmer] trend,” said Piotr Matys, a currency strategist at Rabobank.

“[That] could be potentially supported by an improvement in economic fundamentals should structural reforms be fully implemented.”

The US Fed has raised interest rates three times this year in a bid to restrain inflation. It is widely expected to lift them again in December and three times more next year.

Previous polls have suggested that it may be roughly another six months before the dollar’s strength fades.

Many emerging market currencies were expected to rebound at least somewhat against the dollar in a year as weakening growth momentum takes the shine off the US currency. Some, like the Brazilian real, Turkey’s lira and Argentina’s peso, have started to firm in the past month.

Still, October was the first full month after the latest US tariffs went into effect and US President Donald Trump has threatened China with more duties, a worrying prospect for emerging markets like South Africa.

Elize Kruger at NKC African Economics said the rand’s fair value was around R13.65 per dollar, so was in undervalued territory. “But we do not foresee the rand reaching that level in the short term. Maybe after general elections due in May.”

This week, the SA Reserve Bank said it might be forced to raise interest rates as inflation remained “uncomfortably” near the upper end of its 3% to 6% target range and economic growth is lagging.

Consumer inflation was 4.9% in September and the Reuters polls expected it to average 4.7% this year and quicken to 5.4% next year. A separate Reuters poll last month forecast that rates would rise 25 basis points to 6.75%, either in January or March. While the central bank is considering raising rates, they will not rise as steeply as in other emerging markets, which are responding to deep currency selloffs. –