What has most impact on the rand?

World economic growth and market volatility are the biggest macro issues affecting the rand, according to a Bloomberg poll.

The survey captured the opinions of more than 160 local bankers, CEOs, chief financial officers, corporate treasurers and foreign exchange and hedge fund executives who attended Bloomberg’s Foreign Exchange Summit FX18.

More than one-third of those who responded (37%) said global economic growth and market volatility was the largest macro factor affecting the rand today; 31% said it was foreign investment in SA. Fewer (21%) said US monetary policy or trade fiction and tariffs (11%) were affecting the rand.

Regarding the biggest local issue that will affect the rand in 2019, 54% of participants said it was South Africa’s political environment. Far fewer (22%) expected the rand to be influenced by the SA Reserve Bank’s (Sarb’s) interest policies, unemployment (17%) or the mining industry (7%).

Nearly three-quarters of the participants expect the USD/ZAR exchange rate to end next year within the broad range of R12 to R15; 26% said USD/ZAR be below R12 and still fewer (5%) said it would be above R15.

“Continued tightening in global financial conditions, a change in investor sentiment towards emerging markets, escalating trade conflicts and geo-political developments, together with some idiosyncratic risks, remain the key risks to the local currency,” Sarb Deputy Governor Daniel Mminele said at the summit.

The rand will trade near the level of R13.40 to the dollar by the end of next year, said Standard Bank Economist Elna Moolman.

This expectation is partly based on a dollar story, but also on the assumption there will be political and policy improvements to support a stronger currency. Moolman said the next big local events that could influence the rand were the budget, the response from Moody’s and then elections.

Investec Bank chief economist Annabel Bishop said US monetary policy is placing additional pressure on the rand, especially as SA monetary policy is unlikely to keep pace with the expected rate and magnitude of interest rate hikes in the US.

Old Mutual Investment Group head of economic research Johann Els said an improvement in the political environment could see the rand strengthen significantly if it’s against a backdrop of global economic rebalancing and the expectation of the dollar weakening towards the end of next year. – Bloomberg