Despite a recent rebound, the South African Rand Dollar Outlook for the remainder of the year is still looking bleak. The US Dollar has been enjoying a strong year, and this has pushed the Rand closer to the edge. With the US Federal Reserve putting the dollar on the front foot, the rand is on a slippery slope.
There are a number of reasons for the dollar’s continued strength, but a number of issues are also weighing on the rand. The currency’s value is tied closely to its gold counterpart, and it may lose some of its luster as investors flock to safer havens. Other factors, such as the looming US-China trade war, may also be weighing on the rand.
With the US Dollar on the rise, and the Rand on the slide, the pair will be pushed closer to its lows. This could leave it under pressure, and with the US holiday on the 4th of July, there’s a possibility that it may be unable to move much. There’s also an important GDP figure due to be released on Thursday. This will offer guidance about the future interest rate strategy of the Fed.
The Rand’s strengths include its elevated basis, which should support an appreciation trend. A large trade surplus, healthy risk appetite and a relatively low debt to GDP ratio should also help.
The recent tariff escalation between the US and China is a reminder that emerging market currencies are in for a rough ride. As the US scraps waivers on Iranian oil purchases, the South African trade deficit could balloon, and the rand’s value could be eroded. However, the recent Covid-19 vaccine trial has also helped boost hopes of a global economic recovery. This could also extend foreign trade.
The Rand’s value will also be impacted by the imminent swearing in of South Africa’s new Parliament. The ANC is likely to be in power in the coming months, and the market is eager to know who will lead the new cabinet. If the cabinet is stacked with pro-Rand candidates, it’s possible that the currency will be given a leg up in the next term.
The value of the rand is also highly dependent on the state of the economy. The country’s economy is expanding, but this growth is largely being driven by international factors, and domestic issues are still lurking in the background. This could mean that the Rand’s value may be hampered by predictions that retail sales will fall and further industrial action will be needed.
The dollar has also been pushed higher by the Federal Reserve’s aggressive monetary policies, but it hasn’t gained as much ground as the Rand. A weaker dollar may encourage investors to shift their money to higher-yielding assets, such as emerging market equities. The rand is also aided by positive data, such as the recent Covid-19 vaccine trial.
It’s also possible that the South African economy will be in a recession by year’s end, and this could put a damper on the currency’s value. The GDP numbers are due to be released on Thursday, and it’s possible that the number will be slightly less than expected.