TreasuryOne’s Andre Cilliers is bullish on the Rand – here’s why

TreasuryOne’s currency expert Andre Cilliers unpacks the optimism around the rand, with many analysts predicting there is more positive price action to come after a good start to the year for the local currency. Inflation and the interest rate cycles are two important factors influencing currency markets at the moment. Cilliers outlines the emerging market central banks are ahead of their developed market peers in this regard. He notes this as another tailwind for the emerging market basket, which has enjoyed mixed success thus far in 2022. The rand continues to be one of the best performing currencies this year, buoyed by robust commodity prices. Long may it continue. – Justin Rowe-Roberts

Andre Cilliers on the factors driving a strong rand

We can start with a gold price that’s almost $1,900. That’s definitely a positive for the rand. The other commodities are also doing well; however, I would single out gold. The reason for gold being up, in my opinion, is Russia and the US are not sorting out what’s happening in Ukraine and people are getting jittery about that. The other important factor is in two days, Enoch Godongwana will speak to us. We’ve heard Mr Ramaphosa opening Parliament. He sounded quite upbeat and optimistic. Markets locally generally accepted that very positively. Godongwana will give us statistics. He will tell us what the overrun of tax collection was because of a fantastic year from the tax collection side. That will impact positively on deficits and borrowings as a percentage of GDP. Those figures could be even more positive than what was anticipated during the medium-term Budget Speech in October. So, from that side, definitely some optimism.

On how a 50-basis point interest rate hike will impact the rand/dollar price action 

If they go 50 basis points, it will be accepted neutrally by the market, and the market will then start pricing in more moves. It doesn’t really matter what the Fed does, the markets will be disappointed. They cannot do anything right at the moment. The markets will be disappointed. I foresee the dollar could most probably weaken because of a 50-basis point increase because that is priced into the markets. If that’s the case, that will be positive for the rand. We could well see the euro go back above the 114 levels, closer to the 115 levels, which will be positive for emerging markets. We’ve already got an interest rate that was hiked again. We can anticipate another one. As I’ve said before, the emerging market space and a lot of other countries are ahead of what the Federal Reserve is doing. They are on the defence, which makes it difficult for them.

On the turmoil between Russia and Ukraine affecting the rand

It normally affects the value of the dollar. Under normal circumstances, the dollar increases a bit in value. We had also seen a stronger euro. However, we are slightly cushioned against that stronger dollar because of the gold price also benefiting from turmoil like that. Of course, if it continues and it goes into a full-scale war, we will not be cushioned and we will definitely see a stronger dollar because people will fly into safe-haven areas.

On keeping a balanced portfolio of investments

At this point, our inflation rate is lower than that of the US. In the years that we had an inflation rate well above that of the US, the currency had to correct in value every year, at least by the inflation rate differential, to remain competitive. Overall, we had to correct the inflation differential between ourselves and our major trading counterparts. That situation is slightly reversed at the moment and because of that, the currency does not need to give way that much. My advice has always been very simple. I don’t advise anybody to take everything they own and put it into a hard currency. I always advise a client to have a balanced portfolio of investments. That would include certain amounts in hard currency, in the rand, in equity, in property, in money markets, in bonds, all over, a balanced portfolio. The old people have told us ages ago, not to keep all your eggs in one basket. I’m saying, don’t keep all your eggs in one currency either. Somebody mentioned to me the other day that if you go back into the Bible, it says you should keep your money in more than one currency. So, a very old piece of advice: don’t keep all your eggs in one basket or one currency.

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