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Predicting the way the rand will go is like trying to estimate the amount of rainfall in Cape Town next winter, says Tim Powell, director of Sable International Forex.
He was one of the presenters at an international retirement seminar hosted by Sovereign Trust (SA) in Cape Town on Friday.
He explained that the rand weakened due to being dragged along as part of an emerging market "crisis". SA had no control over this trend. The local currency has weakened by about 15% so far this year against the dollar.
At some point it looked like the rand was going to get stronger – until Minister of Mineral Resources and ANC chair Gwede Mantashe recently suggested that land ownership in SA should be limited to 12 000 hectares per farm and that white farmers who hold more than that should cede the rest to the state for redistribution.
On top of that, ratings agency Moody’s has warned recently that it foresees SA’s fiscal consolidation will likely be slower than the government estimates. The rand slumped after this announcement.
“Remember, Moody’s is the only one of the three major ratings agencies to still have SA at above investment grade,” emphasised Powell.
“If Moody’s also starts 'making some noise', it will not be good for the rand. No trader would want to be 'the last one holding the rand'. Comments by the Economic Freedom Fighters (EFF) about nationalising the SA Reserve Bank are also not helping, of course.”
Powell cautioned that these kinds of headline-making comments certainly do not provide international investors with confidence.
“The rand is a yield currency and investors will dump it if they do not like it anymore,” he said.
Could have been worse
At the same time, he pointed out that matters in SA could have been a lot worse if the ANC did not elect President Cyril Ramaphosa as its president in December last year.
“If that was the case, SA would likely have gone the same way as Turkey,” said Powell.
“SA dodged a bullet in December and we should remind ourselves of that while we are experiencing all the things the country is going through currently.”
Despite what he calls a “relief-rally” of the rand after Ramaphosa’s election, a gradual decline in the currency started again due to factors like the US interest rate policy, the start of global trade wars and the Turkish crisis – as well as events taking place in SA itself.
“There seems to be quite a direct relationship between the rand and three factors, namely commodity prices; the US economy and policy; and the SA political climate,” said Powell.
As was seen this week, even a tweet by US President Donald Trump commenting on SA's land expropriation plans can have an immediate impact on the direction of the rand.
“We desperately need jobs in SA and for that to happen the country needs investment and it would have to come from abroad,” said Powell.
Good mandate
In his opinion, the ANC needs to give Ramaphosa a good mandate in the next national election.
“At the moment it seems as if President Ramaphosa is trying to please a lot of people and that makes foreign investors uncertain. They will likely invest here if Ramaphosa has a strong mandate after the elections,” he said.
In the meantime, South Africans are living with political uncertainty. The Ramaphoria in the first quarter of the year is decreasing and at the same time emerging markets are under fire.
“We really are in a perfect storm. There are so many variables affecting the rand right now. Until Trump's land expropriation tweet this week, it seemed the rand was settling down,” said Powell.
“So many things have to come into play for the rand to get stronger. For instance, if the global trade wars settle down and if Ramaphosa manages to get a better mandate in the election. Therefore, rand strength is possible if these happen. The rand is on the back foot though and its volatility will likely continue long-term."
By late afternoon on Friday the rand was trading up 1.14% at R14.22 to the dollar.
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