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Bloomberg Poll: Global Economics & Market Volatility Most Impact Rand

11 December 2018 Bloomberg

World economic growth and market volatility are the biggest macro issues affecting the South African rand, according to the results of a Bloomberg poll announced yesterday.

The survey captured the opinions of more than 160 local bankers, CEOs, CFOs corporate treasurers, foreign exchange and hedge fund executives, who attended Bloomberg’s Foreign Exchange Summit FX18 last week. The program featured an overview of the South African economy and a keynote address by Daniel Mminele, Deputy Governor of the South African Reserve Bank (SARB).

More than one-third of those who responded (37 percent) said that global economic growth and market volatility was the largest macro factor affecting the rand today, while 31 percent said it was foreign investment in South Africa. Fewer (21 percent) said that U.S. monetary policy or trade fiction and tariffs (11 percent) impacted the rand.

When asked what the biggest local issue is that will affect the rand in 2019, more than half (54 percent) of participants said it was South Africa’s political environment. Far fewer (22 percent) said that they expected the rand to be influenced by the S.A. Reserve Bank’s interest policies, unemployment (17 percent) or the mining industry (seven percent).

Nearly three-quarters of the participants said they expect the USD/ZAR exchange rate to end 2019 within the broad range of R12.00 to R15.00. Twenty six percent said USD/ZAR be below R12.00 and still fewer (five percent) said it would be above R15.00.

SARB’s Mminele said, “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.”

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

Investec Bank Chief Economist Annabel Bishop said that U.S. monetary policy is placing possible additional pressure on the rand, especially as South African monetary policy is unlikely to keep pace with the expected rate and magnitude of interest rate hikes in the United States.

Old Mutual Investment Group Head of Economic Research Johann Els said that an improvement in the country’s political environment could see the rand strengthen significantly, if it occurs against a backdrop of global economic rebalancing and the expectation of the dollar weakening toward the end of 2019.

Tod Van Name, Bloomberg’s Global Head of Foreign Exchange Electronic Trading, said FX professionals need technology to navigate this volatile trading environment. “There is a significant FX community in South Africa that is leveraging electronic trading to access global and local liquidity, increase efficiency and reduce operating risk,” said Van Name, who sponsored the event and moderated the panel of experts.

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