Rand awaits a catalyst

The rand is at a tipping point, with analysts and derivatives traders at odds over the next move for South Africa’s currency. For Societe Generale SA, the rand’s 7.3% rally in the past three weeks is just a temporary blip, with more weakness in store as poor fundamentals and an unfavourable external backdrop weigh on the currency.

Others, including Standard Chartered, see the currency as undervalued and due for further gains, though perhaps not quite yet.

“The rand falls into a category of currencies we are looking closely at but have a lot of challenges,” said Eric Robertsen of Standard Chartered.

“Our expectation is that the currency will improve, but it’s in need of a catalyst.”

That catalyst may come this week, with a raft of data that may give clues about the outlook for South Africa’s economy, including jobs numbers, the trade balance and producer inflation, in addition to the US Federal Reserve’s rates decision today.

Analysts are becoming more bearish, with the median forecast for the rand versus the US dollar by year-end climbing to R14.75, from R13.80 at the end of August. That would represent a weakening of about 3% from its current level of R14.36.

“The risk backdrop for emerging markets remains fraught with challenges …,” strategists at Societe Generale SA said in a report. “The rand is particularly vulnerable.” – Bloomberg