In today’s Rational Perspective Alec Hogg ponders the seemingly precarious nature of the future of South Africa’s currency, and where those in the money could be looking to hedge their bets. The simple fact is that it’s tough out there, and we’re likely to have a bumpy ride ahead all factors considered – Alec Hogg explores these, and whether or not it’s ever a good idea to speculate in Foreign Exchange markets. – Lucienne Ferreira
Hello. I’m Alec Hogg and here is the Rational Perspective.
I had a phone call from a friend of a friend who asked what I think about the direction of the rand from here. He was scratching his head, looking to anybody who could assist him in giving insights into where the currency will be going. It’s not surprising that he wanted help. He had clearly taken a position. He was worried about being carried out on a stretcher and the Rand has been very weak. In the past month, we’ve gone from costing R11.40 for U.S. Dollar to R12.40 today.
Unfortunately, I couldn’t help him and I wouldn’t presume to be able to help anyone on the currency stakes because there’s a whole bank of highly intelligent people working for financial institutions, who have the advantage of a massive balance sheet that they use as well, and who are playing the markets every day (the Foreign Exchange markets). Even they get it wrong sometimes – occasionally, very badly – as we know. In January, when the Swiss Central Bank – overnight – said it would no longer be supporting its currency, which caused it to appreciate by 20 percent against most currencies, including the South African Rand.
In the past month and a bit though, the Rand has been particularly weak. Is it going to continue? Should you perhaps now be buying into the recent Dollar strength? Well, I really don’t know but what I can tell you is that news coming out of the United States is that Washington believes the U.S. Dollar can stay stronger for longer. They are quite happy with the way that their economy is going – unemployment below six percent. The most recent number for economic growth rate was a five percent annualised figure for the third quarter of last year and they are humming along, very happily. They don’t think that the need to intervene or make the Dollar any weaker. Against that (just to contrast), in South Africa we’re a young democracy. We’ve now blown the oil bonus on paying for overspending, which was driven by political ideology in many ways. We are trying to grapple with a disaster that has happened at Eskom because of cadre deployment. When you ask ‘where would you be putting your bets’, it seems pretty obvious to me.
This is Alec Hogg with the Rational Perspective.
