No one knows where the rand will go

It’s anyone’s guess where the rand is headed.

Donald Trump’s US election victory has caught the world’s most volatile currency in a tug of war, with end-2017 forecasts ranging from a 9% gain to a 14% retreat against the dollar, estimates compiled by Bloomberg show.

That’s the widest distribution since at least 2006, when Bloomberg started tracking the data.

Working against the rand are concerns a Trump presidency will force the Federal Reserve to quicken the pace of interest rate increases, eroding the extra returns from riskier emerging-market assets.

At the same time, Trump’s plan to spend as much as $1trn on infrastructure has boosted commodities, which are South Africa’s main export earner, and prompted Goldman Sachs to recommend investors bet on higher prices next year.

The most bullish forecast for the rand, which envisages the currency at R13/$ at the end of next year, has a 60% probability, according to options data compiled by Bloomberg.

The most bearish prediction from the more than 15 analysts polled is for a level of R16.50.

The rand was trading 0.3% higher at R14.20 at 08:00 on Thursday.

“There is something going on in the rand that I cannot put my finger on,” says Umkhulu Consulting analyst Adam Phillips. “It tested 14.02 a couple of times yesterday in the morning session before the US durable goods number and the Fed minutes for November were released.

“Even the local CPI data should have been a pointer that rates will stay at current levels for some time,” he said. “The US durable goods was a kicker to see the rand move up to 14.28 at one stage, but the lack of liquidity has brought it back to 14.20.

“This is in contrast to the euro and the Japanese yen, which have sunk to new short term lows on the back of the USD powering ahead before the Thanksgiving holiday.

“I am not sure what today will bring: it could be quiet, but then the lack of liquidity could move it around.

“Maybe my finger should pay more attention to the Moody’s announcement for SA tomorrow. That is possibly why they are not selling more ZAR at the moment.

“If they don’t change their rating the market will be slightly paralysed until the S&P announcement on 2 December.

“If they did change their rating it will probably make it easier for S&P to downgrade and then the 14.75 level comes into play with 15.30 the next stop. If the ratings don’t move then an initial test below 13.80 will be on the cards,” he said.

By Xola Potelwa with Fin24

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