Expect rough ride for rand, but sit tight - expert

Cape Town - A more pressing concern for the rand is the euro as there is far more volatility possible for the rand arising out of the European market than from Donald Trump’s ascension to power, according to Andrew Rissik, MD of Sable Forex.

These European factors include what he terms the inherent weaknesses and flaws in the euro and Brexit.

“We should rather be looking at the euro, which is in jeopardy in the long term – a common currency linked to a multiple tax system involving countries with wide discrepancies in wealth and governance isn’t sustainable," said Rissik.

“Donald Trump’s victory is bad for the rand in the short term, but the currency will rebound. Although the rand has weakened the most in five years, as global currencies decline against the dollar in the wake of Trump’s victory, it’s not time to panic and jump ship."

He said the American election result is impacting on currencies as people fear what Trump’s administration will mean for inflation and global trade, but it’s a passing storm and people should wait it out.

Rissik also believes that even the dramatic recent events in local politics haven’t impacted as heavily on the rand in the long term.

“There’s usually a hiccup and the currency slowly recovers back to a rate impacted by global fundamentals,” he said.

He said Brexit and Trump’s victory both can be attributed to disillusionment with the concept of a global economy and a backlash from working to middle class tax payers, who are under stress in the current economic environment.

READ: Rand set for biggest weekly slump since August

As with the Brexit vote, the markets react but life goes on and the markets settle back into the bigger fundamentals affecting the currencies. His advice is to take a long term view and sit tight.
 
“The euro has fallen against the dollar, while the pound has been the biggest winner after the Trump victory. I suspect this is indicative that in the new world we may see more crazy events such as Brexit. Maybe Brexit wasn’t such a train smash and maybe the European parliament will take heed of the warning signs that both the UK and now US are flashing," said Rissik.
 
“I suspect that Britain might now have a stronger platform from which to negotiate Brexit and Europe may make changes that entice Britain not to leave. Only last week, a senior German minister suggested that Germany should look at adopting an Australian style asylum policy - remember bad policies are made in good times and good policies are made in bad times.”

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