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It’s becoming easier to back the world-beating rand

These charts illustrate why.
Image: Waldo Swiegers / Bloomberg

The rand’s 30% gain against the dollar since the height of the pandemic has outstripped emerging-market peers — and the rally may not be over yet.

South Africa’s currency has recovered all its losses since it slumped to a record in April last year, and then some. Strong commodity prices and the global search for yield should support the narrative for further gains in coming months. Domestic fiscal metrics — though still far from healthy — are improving along with terms of trade, while the government’s crackdown on corruption is also fuelling positive sentiment.

Listen: Know, and stick to your plan as the rand strengthens

It’s becoming easier to back the rand, and these charts illustrate why:

Bond investors return

After record outflows from South Africa’s bond market in the first four months of the year, last week’s disappointing US jobs numbers heralded a reprieve. Foreign investors bought a net R5.2 billion ($370 million) of South African government debt on Friday, the biggest in inflow since November, as the move lower in Treasury rates gave new impetus to the search for yield. Together with a healthy trade surplus fueled by rising commodity prices, those inflows could be rand-supportive in coming months.

Technical cheer

The dollar last week tested a pivotal area at R14.40-R14.50 after consolidating in the second half of April. Failure to breach resistance meant that rand bulls got the upper hand once again, as shown by the fear-greed indicator, and the pair fell to fresh cycle lows. In the longer-term, the rand seems to be in the final stages of the ABC correction of an Elliot Wave Cycle that started in 2011 and was completed in early 2020. The dollar may weaken toward the R11.50 handle, according to the pattern.

Encouraging options

Demand for dollar topside exposure took a hit as key resistance around R14.50 held. While greenback calls still trade at a significant premium, bearish sentiment for the South African currency, as measured by one-month risk reversals, has moved to the lowest level in three weeks, with room to extend toward February range extremes.

Shiny prospects

The correlation between the Bloomberg Industrial Metals Sub-Index and the rand has strengthened to 0.6, near its strongest level this year. Industrial metals account for about a quarter of South Africa’s export earnings, bolstering the current-account balance, for long the rand’s Achilles heel. The current account may be in surplus this year, according to the median forecast in a Bloomberg survey.

Best bet

The large inflows from loans South Africa procured from the International Monetary Fund and New Development Bank amid the height of the Covid-19 pandemic have created a surplus of dollars in the local banking system. That’s lifted USDZAR basis swaps well above the long-term average, making it expensive to short the South African currency. With more inflows expected this year from a World Bank loan and Eurobond issuance, the cost of betting against the rand will remain elevated for some time.

© 2021 Bloomberg

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If true I don’t know if this is good or bad news. For my business, short term, exporting 95% of my products – it feels bad!

Great to see the currency beginning to reflect the excellent value our gold & diamond heart of a country has to offer the World.

Diversity and abundance are keys- not least arts, culture and heritage to share internationally.

As the doors to tourism begin opening again, watch us soar!

All those sectors are more profitable with a weak Rand. SA needs a weak Rand to remain competitive globally.

OK. But strong rand is not better for tourism as it reduces the tourist’s spending power in SA.

Even if the Rand was R10 or R5 to the Dollar, South Africa is still very cheap to live in.

Johannesburg is one of the cheapest cities in the world to live in.

You also do not want to attract the poorest holiday makers.

I’m not sure about your logic. The stronger the Rand is against USD, Euro, Sterling, etc, the more expensive our tourism product becomes for international tourists.
I don’t believe that our tourism sector will recover to previous levels for the next few years. With airlines facing less competition and trying to recover Covid losses, the cost of flights will “soar”.

South Africa has done almost nothing on the vaccination front. Hard to see how tourism will recover for years if that is how we approach it. If we do all the vaccinations we have done so far every 2 days from now on till next June we MIGHT start to settle at the point. (but that is probably not going to happen) So SA is choosing to stay in the lockdown cycles for the long haul it seems

Rand now positive over 1 month, 3 months, 6 months, 1 year, 3 years & 5 years against the USD. With higher inflation some SA wage earners have got bit richer vs. their US counterparts. Nevertheless, USD could be a buy for the long term in the R13-R14 range.

And then the lights went off ! !

Perfect opportunity to get money offshore before the implosion.

Maybe there will be an implosion, but more likely SA will recover nicely. SA government are keeping their geopolitical opinions quiet, so they won’t be punished gratuitously.

World beating Rand?

For perspective look at a long dated chart 1970 – 2021! USD

..and of course we have an outstanding investment grade..

In 1985 it was R2 to the dollar. Now it is R14. That does sound like a big depreciation but it’s “only” 5,5% per year. That’s about right

For as long as I can remember the exchange rate was $ 1,1529 / R 1.
Then things went haywire.

Is another words all I needed to do was buy the $ and do nothing and I was covered for inflation in Rand ? Excellent

If I was long the Rand I started each year 5.5% down and had to make up quite a bit to have an acceptable real return.

How did that go for you?

Aah thanks, now we have been given a mandate to use long term charts by Seriously.

I managed to get the ALL Share Index back to 2003. In USD terms the all share index returned 12.06% per annum and the S&P 8.6% per annum over the last 18 years. I would have loved to do be able to do one since 1970.

Where is strongman Magnus Ver Magnusson?

If you bought a Farm in 1970 for R100,000 – you would’ve had the farm and all the produce and returns from it and probably able to sell that farm today anything between R10 million and R50 million, depending on where you bought and what you’ve done with the farm. If you would bought Dollars for the same amount in 1970, you would’ve had R1.4 million today. Whoo haa!

The Rand is not actually stronger on our country’s merits as such. USA are printing dollars big time (1,9trillion + 3 trillion?), and that is the true reason for our current strength in the Rand.

“Quantitative Easing” – the time bomb that Socialist love to use to pay for all their election promises.

It went on the entire time under Trump as well. It’s being practiced by decidedly non-socialist governments around the world.

Imagine how strong the currency would become if the rest of SA became like the W Cape.

Best time to get money offshore!

agree…. cos once ACE and Julius get into the Presidency race…. good bye SA …good bye Rand

Remember the burger joint reckons we’re still undervalued north of 50% but I guess that’s the Africa factor.

Fiat vs Fiat.

And since 2001 the USD has devalued from $253 to $1800 against gold.

Hope it continues to R10 to the dollar…thanks to covid19,recovery of the fastest growing economy and australia’s greed

End of comments.

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