It’s been a while since I last opined on the mighty Rattler otherwise known as the South African Rand.
What a performance it's been, and I must admit it’s been super refreshing being on the winning side of the currency market.
After spending a few depressing years performing like Man Utd, it’s been great fun watching the Rattler rise like the great Liver bird on the banks of the Mersey.
The Rands performance has been nothing short of spectacular when viewed against the backdrop of its underperformance of the last decade or so.
In 2017 then-President Jacob Zuma fired his Finance Minister in an event forever known as “Nenegate”, which saw the Rand weaken swiftly from around 16.000 to 17.000 in a few short hours – the Rand is back to those levels at 17.000 to the USD after spending much of 2022-2023 above 19.000.
During 2023, the Rand was truly the runt of the currency world. The negative sentiment was so poor at one stage that the traditional proxy link between the Mexican Peso and the Rand was rendered asunder when the Rand broke through the 1/1 level against the Peso and eventually traded close to 20% weaker than its emerging market peer.
Today the Peso trades about 10% weaker than the ZAR – the Tequila index in South Africa should be about 30% cheaper than it was a year ago. That is a substantial move in a very short space of time.
And the reason for all of this positive sentiment?
Essentially it has been driven by 3 major factors:
- The formation of a GNU in South Africa which, for now, has partially eliminated a further swing to the left for South Africa’s economic policy. The impact of this is largely symbolic for now as we are yet to see any concrete policy shift. More about this in future musings. The absence of load shedding for close on 6 months has also positively impacted sentiment.
- The interest rate differential between the USA and South Africa has actually widened as the FED cut rates by 50BP recently and the SARB only 25bp, thus attracting capital flows to increasing interest rate differential.
- And then China has stepped in with large economic stimulus in an attempt to bolster an ailing economy. In the short term this is seen as further incentive to buy high-yielding currencies. In the medium term this may prove to be temporary if China's economy does not respond.
There have been other contributing factors – not least of which is the Gold price. The price of Gold has risen steeply on the back of global factors, and South Africa does still produce some gold although in declining volumes.
So where to from here?
That is ALWAYS the trillion-dollar question.
We have seen some analysts talking about 15 to the USD. There was one brave soul suggesting that 12.75 is a realistic medium-term target.
I am not that bullish, although it's quite possible that we may soon see a 16 handle behind the rattler.
However, as always, there are a number of things to keep an eye on when trying to predict where the Rand may eventually trade.
Firstly the status of the GNU.
South Africa’s new political dispensation is facing one or two stern tests. Factors like the NHI bill, the education bill and others will test the ideological makeup of the GNU.
Municipal and regional politics are also placing strain on the National “bromance” as the Gauteng faction of the ANC has maneuvered to oust the DA’s Tshwane (Pretoria) Mayor.
It may prove very difficult to hold the GNU together nationally when at regional level we observe a much closer working together of leftists leaning factions.
It’s one thing to work together to keep the EFF out of national decision making – it's quite another when your partner is cheating on you at regional level.
Politics being politics makes it awkward when you find your bestie flirting with another BAE.
Speaking of politics.
There is the minor matter of the US elections coming up soon.
OH Lord have mercy.
Trump V Harris. Where does one start???
The Democrats and Republicans are at it again. Both bragging about who has the biggest rallies and whose supporters are bussed in and paid to sit through hours of rhetoric.
It’s not as if there are not enough key policy decisions that need to be addressed.
A 35 TRILLION USD debt pile should keep anyone awake at night.
A debt pile that has seen the interest bill running at 3 billion USD a day as the single biggest budgetary item (bigger than defense) on the USA’s national budget.
Other issues like immigration, gender equality, reproductive rights, crime etc. are all on the agenda – however, the eating of cats and dogs has consumed more media attention than all of these other issues combined.
Trump's solution – deport millions of people and raise tariffs on everything from tractors to microchips in the false belief that the exporters will foot the bill (as opposed to the consumer)
Harris's solution – let more people in, subsidise everything and hope for the best.
Oh, how I detest politicians!!!
For now our own lot here on the Southern tip of Africa do appear to be the adults in the room – for now!!!
Anyway, this is where we find ourselves.
Throw in a bit of geopolitical tension, a threat of a global recession and an equity market that appears to be acting on steroids….what can go wrong???
Whilst we are winning let's enjoy it all. It can all turn ugly rather quickly – just ask the average MAN UTD supporter!!!