While good old Shakespeare had no currency in his head, but who and why Romeo is what he is, we must ask ourselves these days what our beloved Randelas are doing and what is to expect from our national currency.
First the good news: amongst all other currencies in the Emerging Markets (EM) the Rand has over the last weeks been one of the best performing currencies. This is not the least owed to the fact that – despite huge public distrust – the South African economy is doing reasonably well on a sadly low level.
While two of our BRICS partners, Brazil and Russia, are already in a recession, the risk for South Africa is still a more technical one, when it comes to the definition of two subsequent quarters of a shrinking GDP. South Africa has lost it’s leadership and does what it does best and has proven over and over in the past: let’s roll up our sleeves and ignore “clowns.com”, our ineptly ruling “triumvirate”. We do not want to downplay that the current drought, water and electricity problems as well as administrative obstacles make live not easier for our corporate environment, but the industry is still healthy, Exporters have a “ball” in the moment and the local market is blessed with low oil prices, cheap commodities and plenty of labour available, poorly skilled though.
The Rand would technically have to be at roughly ZAR 8 to the USD, but contrary to the situation at the stock markets, demand does not exceed supplies and therefore the Rand stays weak while stocks soar. In this context one may ask what the outlook is? Surely there are the doom-and-gloom analysts, who see the Rand at ZAR 20 to the EURO, but that scenario is not shared from our side. We agree that any negative news from the EM and especially within the BRICS “concert” will negatively affect the Rand, but that is nothing new and especially from India more and more positive data is excepted as the economy is currently enjoying new dynamics and a positive up-turn.
The FED in the US of all A has done a 180 degree turnaround and is currently increasing interest rates while Europe and Asia are still on the down-trend. This and various upcoming data releases from the US might again put pressure on the Rand as capital will be on the move into the Greenback.
So, what is our advice? Stay partly in US Dollars where you can (as we will most likely see exchange rate parity to the Euro before the year is out), calculate based on and provide for continuous high volatility in the Rand Exchange Rates and do not despair: our Randela is not and will never be a Zim Dollar!