Publications
Partners
Cape Town - Over the coming two years the rand will probably remain in a range around R10/$, according to Nomura emerging markets expert Peter Attard Montalto.
The rand reached a five-year high of R10.83 to the dollar on Thursday.
"Our view remains of USDZAR in a (very-very-) wide and upside skewed range around 10, over the coming two years though clearly we are pushing it with current price action," said Montalto.
"Even if we went back to 10 we would still label that as a weak, inflation inducing level that was enough for rate hikes."
He said the move on the rand seems to be on a trickle of outflows on the equity and bond side.
"Although nothing dramatic, it shows the current account funding vulnerability issue nevertheless," said Montalto.
"The move remains orderly – no one in the South African Reserve Bank (Sarb) is sitting by a big red button saying ‘intervention’. They maintain their hands off stance on currency."
He asked why the market is only waking up to inflation risks this year, given that the rand really is "not in some magically different zone now compared to before Christmas".
"The market will likely struggle with the inflation volatility to come in the first half of 2014 and Sarb may well be hammering home hawkish rhetoric as such," he said.
"Their interpretation of benign market reaction to taper as more an indication that they can look at stronger global backdrop is important in this regard."
He said that at below R11/$, the rand is not at levels for Sarb to hike earlier than May.
"The probability of that clearly increases the higher you go in the $/rand rate, but there is still a low chance overall, given the coming election and the need to see stronger GDP data actually coming through."
He said there is no sovereign risk stress on South Africa right at moment.
"We think most risks are broadly priced in by the market, but electricity is the main one that isn’t," he said.
"The lack of aggressive export offers on the $/rand over last month has been surprising – as the conomy seasonally recovers through January this may return."
The rand reached a five-year high of R10.83 to the dollar on Thursday.
"Our view remains of USDZAR in a (very-very-) wide and upside skewed range around 10, over the coming two years though clearly we are pushing it with current price action," said Montalto.
"Even if we went back to 10 we would still label that as a weak, inflation inducing level that was enough for rate hikes."
He said the move on the rand seems to be on a trickle of outflows on the equity and bond side.
"Although nothing dramatic, it shows the current account funding vulnerability issue nevertheless," said Montalto.
"The move remains orderly – no one in the South African Reserve Bank (Sarb) is sitting by a big red button saying ‘intervention’. They maintain their hands off stance on currency."
He asked why the market is only waking up to inflation risks this year, given that the rand really is "not in some magically different zone now compared to before Christmas".
"The market will likely struggle with the inflation volatility to come in the first half of 2014 and Sarb may well be hammering home hawkish rhetoric as such," he said.
"Their interpretation of benign market reaction to taper as more an indication that they can look at stronger global backdrop is important in this regard."
He said that at below R11/$, the rand is not at levels for Sarb to hike earlier than May.
"The probability of that clearly increases the higher you go in the $/rand rate, but there is still a low chance overall, given the coming election and the need to see stronger GDP data actually coming through."
He said there is no sovereign risk stress on South Africa right at moment.
"We think most risks are broadly priced in by the market, but electricity is the main one that isn’t," he said.
"The lack of aggressive export offers on the $/rand over last month has been surprising – as the conomy seasonally recovers through January this may return."
