Rand recovers despite low confidence in South Africa reform
The rand is back to pre-pandemic levels despite little confidence in the South African government’s ability to revitalize its economy.
FX analysts are used to fluctuations in South Africa’s currency. It tends to suffer disproportionately when emerging market (EM) risk sentiment is low, but rise faster than others when there is optimism in the air.
Having been hammered by the coronavirus outbreak, the rand is now at pre-pandemic levels. And Nedbank chief economist Nicky Weimar says it is rapidly approaching fair value, based on purchasing power parity.
“If one considers that South Africa’s economy is far more inefficient than those of its major trading partners, the rand’s undervaluation is probably close to 3%,” she says.
“The currency tends to overshoot on the way up and the way down, and the current firmer trend will continue for as long as global sentiment holds.”
Elna Moolman, head of macroeconomic, fixed income and currency research at Standard Bank South Africa, notes that the country’s terms of trade reached record highs this year.
Few believe [the government] will be successful
“We estimate that the growth in export destinations, weighed according to their importance for exports, will be the highest in a decade next year,” she adds.