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The rand (6.7.04)

05 July 2004 Angelo Coppola

The strong rand continues to make headlines, some of them good and some of them conveying how bad this strong rand is for exports and the effect that this may have on the current account of the balance of payments.

Dawie Klopper, at PSG Fund Managers, says that when considering the rand it is also a good idea to keep in mind the source of our trade with the rest of the world. Europe is by far our biggest partner for international trade (36%).

The US and the UK follows at 15%, followed thereafter by Japan (10.4%), then Switzerland (5.54%) and China (3.1%).

However, the pace at which the rand strengthens has slowed from November last year, with a recent attempt to break to levels last seen in 2000.

The above is especially relevant in trying to forecast the current account of the balance of payments. It is normally stated that the strong rand makes it difficult for our exporters to remain competitive whilst importers have a field day in competing with local producers.

Although the rand could strengthen further from current levels I am of the opinion that we could start forecasting future movements in the rand using this level as a solid base which should be difficult to better.

Inflation and interest rate differentials and commodity prices should play a role but the only proviso must be that a sudden unwinding of the carry trade or significantly lower commodity prices could lead to a sudden weakening of the rand.

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