The rand has performed well recently, due to a number of internal and external factors. But is the rally sustainable?
Are we in for a period of relative rand strength, or is the currency vulnerable to a relapse?
Reasons for recent strength:
- The US Federal Reserve has delayed raising interest rates.
- Currencies that were looking oversold have been bought, including the Rand.
- SA growth has been slowing which means fewer imports so the natural outflow of USD has slowed.
- The recent municipal elections went off smoothly.
- Interest rates in SA are relatively high.
- The Fed is uncomfortable with the current level of interest rates and the Fed has stated that there will be an interest rate hike in due course. Investors should not become complacent with the status quo and assume that it will continue.
- There should be a greater level of imports towards the end of the year.
- To shore up support after the local government elections, the ANC Secretary General Gwede Mantashe has made comments suggesting that the party is leaning towards fiscal populism. This will contribute to renewed anxiety regarding a credit rating downgrade.
- Any reports or concerns around the removal of Minister Pravin Gordhan being removed as Minister of Finance.
The above factors would contribute to rand weakness.
Source: ForexPeople / Stanlib