Dollar weakness provided some relief to the rand, but an analyst has warned that events in Zimbabwe could impact the currency.
In a report RMB’s currency Economist John Cairns shared that there may be a repeat of the 2001 crisis where the currency depreciated as much as 26%. “Remember that the great blowout of 2001 was at least partly because of — or at least blamed on — Zimbabwe,” he said.
“We have already heard stories of Zimbabweans rushing to take their money out of the country, and a full blown coup would lead to a further rush of refugees.
“On a longer-term basis, South Africa could benefit from an economic and political change in Zimbabwe, but for now the risks are probably that the troubles add mildly to rand pressure,” he said.
Andre Botha, dealer at TreasuryOne, warned that the rand, which opened stronger at R14.36 to the US dollar, could be affected by the fallout in Zimbabwe if there should be military action.
It would be "guilty-by-association" reaction with South Africa's proximity to Zimbabwe being the primary cause of concern. "For now, we sit and wait to see what the real outcome is in Zimbabwe before we make any suggestions of how it could affect the rand.”
However, Executive Chief Economist at Alexander Forbes Investments Lesiba Mothata told Fin24 that South Africa’s markets are not linked to other sub-Saharan Africa (SSA) markets.
“There could be war in the Congo, there could be war in Nigeria, there could be a coup in Zimbabwe, but SA will still not get impacted. There is no statistical correlation between the two other than political dimensions.”
US tax reforms
Uncertainty on a deal being reached regarding the US tax reforms helped boost rand strength.
The dollar was also weakened against the euro, by better than expected GDP data from Germany, suggesting that the economy is stronger, Botha explained.
The eurozone has maintained its growth rate of 2.5%, said currency expert from Umkhulu Consulting Adam Phillips.
Phillips is of the view that if events in Zimbabwe were to hurt the rand, then I would expect good export interest above R14.48.
But speaking on the matter he said: “I am sure this story will be main news around the world today and I am not sure of its effect on the ZAR (rand).”
“If one puts it aside, then the rand should continue to move stronger.”
The rand has strengthened as much as R14.34/$ before rebounding back to R14.36/$.
Source - Fin24