TreasuryONE’s currency risk strategist Andre Cilliers has been involved in the foreign exchange markets for almost four decades. He could probably count on one hand the number of times he has been optimistic about South Africa’s ever-weakening currency. But a confluence of factors is providing a powerful stimulant, with Cilliers having transformed (at least temporarily) into a rand bull. He reckons a further surge to R14.50 against the US dollar may be on the cards.
Andre Cilliers on the technical analysis of the rand
The emphasis is not really on trying to predict the currency, but to try and manage the risk that comes along with being in markets, either importing or exporting, and to mitigate some of those risks. There are various products you can use. We have advised our exporters that if you see it around the 15.30 and 15.40 levels – referring to the rand dollar exchange rate – we recommend our exporters look at covering some of the risks, especially for the short term, because those rates might not be there for a very long period. You will recall we’ve spoken about a currency that traded in a 15.20 to 15.50 band and I’ve said several times that if it breaks out of the 15.20 to the bottom end, we could test the 50 levels against the rand, which is exactly what happened. We are now at these levels where we’re currently trading around 14.85. In between, we had the war and a currency that behaved very strangely because most people expected the rand to take a bit of a beating and weaken substantially at the start of that war. We are currently below the 15.00 level, so it’s very unlikely it will break out of a range of the 14.85 to 15.20 levels at this stage. It seems to be firmly entrenched at those levels. We are getting closer to technical levels again, where if it breaks lower, we could even go down as low as 14.50.
On factors influencing the rand’s outperformance
We have seen a gold price reaching levels of 2,070. We’ve had palladium up at 3,600, and platinum around 2,300. It has since come down quite a bit, but at those levels, South Africa being a commodity country, definitely got a bit of a right tick in that block. Secondly, if you look at Russia and the South African trade figures with Russia, certain industries in the country – the fruit industry, for instance – might be slightly more exposed. But if you look at the overall trade of South Africa with Russia, then our trade with Russia and Ukraine are relatively small and they are not our biggest trading counterparts. In other words, in terms of sanctions and a flow of goods between the countries, we could get a little right tick in that block. Geographically, we sit at the southern tip of Africa, which is a bit far removed from what happens in Europe, is again a right tick. With all those little right ticks in terms of trade and imports and exports, that is why the rand performed better. Our yields are also still relatively high compared to other emerging market countries. So, for a change, you can say that we are a slight safe haven at the southern tip of Africa, hence the rand performed exceptionally well during this period.
On the rand going forward
It is difficult to interpret what [will happen going] forward. We are seeing the oil price performing badly again; bad for consumers, good for oil and oil drillers. I think the reason is Europe saying they might place an embargo on the oil. There could be a further shortage of oil because nobody else can import oil out of Russia. Going forward, we have to see how close we get to talks between Ukraine and Russia because that will impact how things [pan] out. But for the moment, I do not foresee the rand will suddenly weaken and go above the 15.10, 15.20 levels. We will remain within these ranges and we have to watch the 14.80 level quite closely. If that breaks below 14.80, we could go into a range of 14.50 to 14.90 for quite some time. At the moment, the risk for me is to a stronger rand and not really a weaker rand.
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