THE FOREIGN EXCHANGE value of the rand is set to tumble 20% on a trade-weighted basis by end-2006. That's the view of Nazmeera Moola, chief economist at Merrill Lynch SA. Moola is a top-class professional. Her abilities in predictive analysis have just been recognised by her award as "Reuters economist of the year" for South Africa.
There are a great many business leaders ? and plenty of voices within Government and the trade unions also ? who'll be extremely pleased if Moola again picks up the award next year.
They all certainly strongly hope she will be proved pretty accurate in her projection of a US$1/R7,50 rate by end-2006.
But will she?
Inevitably, there are dissenting opinions. Many come from economists whose technical expertise and overall track record fully rank with Moola's.
For example, the Nedbank economics unit ? headed by the excellent Dennis Dykes ? reckons that in 2006 the USA dollar/rand rate will average US$1/R6,77 ? or much where it is now. More, Nedbank thinks that the average for 2007 will still be only US$1/R7,16.
The table offers a spread of options from experts. But don't look for a money-back guarantee from any of them.
Currency markets do have a long-term logic. However, in the short and medium term they regularly defy what most analysts deem "reality". So is it only a major opinion difference that accounts for the major divergence between Moola and Nedbank ? or do some other explanations come into play?
They do indeed. The rand is necessarily just one half of the above equations. The US dollar is the other. Elementary and obvious, you say. Sure. But the fact is that almost all discussions ? or, more precisely, reports about such discussions ? concerning the US dollar/rand outlook tend partly if not wholly to ignore that key two-way factor. But that's where so much confusion flows from.
Assume that there are only two US dollar/rand forecasters. And also assume that both have broadly similar views about SA's economic fundamentals, including some equilibrium estimate for the "true" all-in forex value of the rand.
However, further assume that the two forecasters have sharply contrasting views on what will happen to the international fortunes of the dollar. On the one side, the hardline dollar bear points to the massive US trade deficit (now well over $800bn annualised).
Then maybe he/she quotes one of the most famous economic observations of recent decades. It came from Herb Stein, sometime chairman of US President Richard Nixon's Council of Economic Advisers. "If something cannot go on for ever, it will stop," Stein observed with commendable logic and brevity.
Dollar bears reckon that's exactly the case with the US deficit ? and that a huge dollar devaluation is a necessary though not sufficient condition for restoring some basic stability to the greenback. For stopping something that can't go on.
Fred Bergsten, director of the US Centre for International Economics, is one of the world's most quoted US dollar pundits. He says that a 20% overall US dollar devaluation ? but especially against the leading Asian currencies ? is a categoric global imperative.
Well, if that were to come about ? and it's a big if, particularly on the Asian front ? there would clearly be no reason to expect rand weakness against the dollar.
However, the rand could still show moderately significant drops against the other big-league currencies. That's what Nedbank thinks will happen. It sees, critically, the rand easing to an average of R13,04 against the British pound in 2007 (roughly R11,80 now) and to R1/15,4 Japanese yen from today's R1/17,7 yen.
But there are also a host of US dollar bulls, relatively anyway, still around. They note, among other factors:
? That the Asian countries generally ? Japan and China are ultimately the two which really count ? continue to oppose any large-scale upward revaluation of their currencies against the US dollar.
? That the International Monetary Fund supports the Chinese in that.
? That no matter how imperfect and fragile the current de facto system looks ? the US trade deficit is largely financed by colossal recycling of dollars back to the US from Asia ? this show has actually stayed safely on the road for the best part of 10 years.
? That the main weaknesses of the European Union ? crisis in France, ongoing doubts concerning the sustainability of any feasible government in Germany and near-implosion of Italy's economy ? hardly make the euro a candidate in the foreseeable future to take over the dollar's global role.
? That economic pressures are building up daily in Britain and that, in turn, puts the pound in the "overvalued" currency group.
? That the US dollar keeps showing exceptional resilience where the judgment finally counts: in the world's foreign exchange markets.
Put all those points together and it's inevitable that views with regard to the US dollar/rand outlook vary widely.
For Moola to come out nearest to the actual outcome will require continuing dollar resilience just as much as renewed rand softness.