The world is changing fast and to keep up you need local knowledge with global context.
TreasuryOne’s Andre Cilliers leads this week’s currency focus with the ever-volatile rand remaining firm against all the major currencies. Central banks around the world are slowly starting to put a lid on the extremely accommodative monetary policy stance that has seen economies recover much faster than expected. These policy decisions – not only by the South African Reserve Bank but other central banks, too – will be critical in determining the direction in which the rand will head. Cilliers notes that the basket of emerging currencies as a whole are somewhat dependent on each other; the rand has been flavoured with Turkish delight as the country cut its interest rate for the second straight reserve bank meeting. – Justin Rowe-Roberts
Andre Cilliers on the driving factors behind the performance of the rand:
Well, in the last few weeks, nothing has really changed. The drivers are still the Federal Reserve and its decisions surrounding tapering, what they will do regarding interest rates and how the employment figures gel out, which influences them. But over the last couple of days, we’ve got some Turkish delight flavouring into the rand, with the Turkish coming in and hiking interest rates. So did Russia. But out of Turkey, there are rumours of firing 10 of their ministers and that creates a little bit of havoc in terms of the emerging market space. We have seen the rand giving back some 20 cents since Friday to the levels we are trading today.
On Transnet’s incompetence causing issues for the rand:
That will certainly have a damaging effect on the rand because we can produce as much as we want to but if we can’t deliver it on the other side and get payment for our exports, it is a problem. But one must immediately just add here that it’s not just inside Africa that we have these kinds of problems. [There are] problems in terms of harbours and the logistics side, right throughout the world – in China, in America, wherever – [name the country] and they have logistical problems. It’s a compounding problem in getting goods to the final user at the end. If it continues, it definitely will have an impact both on your trade figures and on the rand.
What will happen if interest rate hikes take place in the US before South Africa:
If there is an announcement in the US increasing interest rates before the South African Reserve Bank, it would be a bit negative towards the rand and we could see the value of the currency lose some of its value. I very much doubt whether that will happen. I think the Reserve Bank will be in a position to move before the Federal Reserve, as the Federal Reserve has got quite a bit of tapering to do. When one speaks about tapering, that’s a buyback of all the money they’ve pushed into the markets during their quantitative easing programmes. Before they’ve done that, they will not move [on the] interest rates.
On the correlations between other emerging market currencies:
Well, the Turkish lira, the rand, the Brazilian real – all those emerging market currencies are actually correlated to each other to a greater or lesser extent. Whenever there’s a hiccup in any of the emerging markets, you will have an influence, as I say – to a greater or lesser extent – in all the other emerging market currencies. So not a direct correlation but because they all fall within the emerging market space, there will be a move in tandem. If one moves, the others will also move.
What technical analysis tells us about the rand/dollar price action:
It’s telling us we could be testing the upper band of R15 to the US dollar again, but chances are it will fail at that level and retreat down to levels of around R14.50 or R14.60 to the US dollar. So, the technical side tells us we will – for the next two to three months – remain within a band of R14.40 to R15.10 to the US dollar, more or less oscillating around the midpoint or around that level of R14.70.
- Only way to avoid stagflation is to increase our interest rates – TreasuryONE’s Andre Cilliers
- TreasuryONE’s Andre Cilliers on rand strength – ‘When has the rand ever behaved properly?’
- Barring war and unrest, the rand looks stable for 2021 – TreasuryONE’s Andre Cilliers
Cyril Ramaphosa: The Audio Biography
Listen to the story of Cyril Ramaphosa's rise to presidential power, narrated by our very own Alec Hogg.