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Rand just about where it should be

Jun 25 2018 19:56
Robert Brand, Bloomberg

The rand’s 13% slump this quarter has left the currency fairly valued, according to its real effective exchange rate (REER).

The rand’s REER as measured by the Bank for International Settlements is now equal to its 10-year average, meaning it’s neither over- nor undervalued when benchmarked against a basket of other currencies over the long term.

The rand had been undervalued since 2013 before moving into overvalued territory this year as a change in SA’s political leadership and economic outlook spurred an advance in the first quarter.

But an emerging-market sell-off since April wiped out those gains, bringing the rand’s REER back to its historical average.

According to this measure, Peru’s sol is the most overvalued emerging-market currency and the Turkish lira the most undervalued. A currency’s REER is the trade-weighted mean exchange rate in relation to a basket of other major currencies, adjusted for inflation.

By Monday evening the rand was down 1.35% at R13.58 to the dollar.

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rand  |  dollar  |  markets  |  currencies


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