The rand reached a 20-month low this week. Unfortunately, more analysts think the worst is yet to come, especially if the US goes into recession. | Fin24
Unfortunately, more analysts think the worst is yet to come, especially if the US goes into recession.
In the first half of the year, the rand benefited from high commodity prices that lifted the current account into surplus. Improving fiscal metrics and a hawkish tilt at the central bank also helped. The market remains heavily long rand, according to US Commodity Futures Trading Commission data, leaving the currency at high risk of a selloff as conditions change.
The rand is down 3.3% this half, reaching a 20-month low of 16.9652 per dollar on Friday. The Bank of America strategists see it extending the decline to 17.20 per dollar.While a global recession could weigh on oil prices, which would benefit energy importers like South Africa from a balance-of-payments point of view, that's only half the story, according to Nedbank Group Ltd.
And while domestic positives for South Africa thus far outweighed the negatives, that is changing. Deepening power outages that will weigh on economic growth have already caught rand bulls off guard.Not all the bulls have given up. The selloff could abate if China's economy recovers strongly and the South African Reserve Bank follows through on its promises of aggressive policy tightening, according to Societe Generale SA.
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