The rand has maintained its volatile nature in the first few days of the year with some dramatic moves last week, indicating that it is in for another bumpy ride in 2023.
“In the short term, the rand moves will still be dominated by what happens in the US, as fears of a recession still remain,” said TreasuryONE chief dealer Wichard Cilliers, adding that the range of R16.75-R17.35 over the next month is likely, “with some risks to break even weaker”.
Often a barometer of investor sentiment towards emerging markets due to its status as being among the most easily traded, the rand started 2023 on a strong footing — touching the best intraday level since August 30 at R16.7815/$ on Wednesday.
It completely erased those gains, however, the next day, falling more than 2% — the biggest one-day fall in a month after December’s strong private sector employment data from the US signalled the Federal Reserve is likely to keep interest rates higher for longer.
According to Annabel Bishop, chief economist at Investec, the risks for 2023 include the global economic slowdown proving more severe than expected, “which would yield lower global interest rates and inflation rates than currently expected, but raise risk aversion levels, and so have a negative effect on the rand”.
With the global economy expected to weaken this year, and the IMF warning that one-third of the world could be in recession, “markets participants are concerned that the Fed could potentially only cut rates later in the year”, Bishop said.
“Markets continue to worry over the Fed’s monetary policy proving too restrictive, thus investor uncertainty remains high, and so the rand is weak,” said Bishop, adding that “the rand will consequently be unlikely to pierce R16/$ this month, but could track towards this level.” It last flirted with this level in August last year.
Locally, factors including rotational blackouts by power utility Eskom and President Cyril Ramaphosa’s Phala Phala saga will be watched by market participants.
At Friday’s close, the rand had regained 0.3% of Thursday’s losses to R17.0961/$. Friday’s US nonfarm payroll data showed the world’s largest economy’s labour market remained steady, with the 223,000 jobs created in December outpacing analyst expectations for 200,000.
The move saw the dollar firm slightly against most emerging-market currencies late on Friday and early Saturday.
According to Bloomberg, the rand is expected to trade at an average of R16.50/$ in 2023, based on the median estimate of 32 respondents polled by the media house.
“Over the medium term, if all the dust settles, we think that the rand can perform a little better and can retrace to levels below R16.50 as we approach the second half of 2023,” Cilliers said.
Sasfin said in a note that the exaggerated move by the rand on Thursday was likely to correct itself in time, “as the dollar’s overvaluation looks unsustainable”.
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