South Africa’s currency slumped 14 per cent in the second quarter amid a sell-off of emerging-market assets.
The rand’s comeback against the dollar this month will run out of steam as US rates rise and the trade war between the world’s two biggest economies weighs on global growth, according to the most-accurate forecaster of the South African currency.
The rand has gained 2.2 per cent against the greenback since the beginning of July to around ZAR 13.39 per dollar on Tuesday. Any further advance should be seen as a dollar-buying opportunity, according to Rabobank, which tops Bloomberg’s latest ranking for rand-dollar forecasters and predicts the South African currency will end this quarter at ZAR14.20, a slide of about six per cent.
“The rand is under renewed selling pressure amid fading positive market sentiment,” said Rabobank’s London-based emerging-markets currency strategist Piotr Matys, whose forecast for the currency is more bearish than the median of ZAR 13.46 in a Bloomberg survey. “The prospect of a full-scale trade war remains the main risk factor for the rand and its peers.”
With foreigners deserting the country’s bond market at a record pace, the trade enviroment making it more difficult for President Cyril Ramaphosa, who replaced the scandal-tainted Jacob Zuma in February, to deliver on promises of attracting investment and stimulating growth in Africa’s most-industrialised economy.
While central banks from Argentina to Turkey have tightened policy to support their currencies, South Africa’s Reserve Bank stayed put after cutting its benchmark in March to 6.5 per cent. That narrowed the differential over the US policy rate to the lowest in 11 years, reducing the relative attractiveness of South African assets. Bond and equity outflows may accelerate as the Federal Reserve continues to hike, Matys said.