The South Africa Rand traded between 7.1917 and 7.3120 to the US Dollarduring the 9th and 13th of August 2010. The Randwas also trading between 11.3673 and 11.5418 to the British Pound in the sametime period.

The mass labor strike in SouthAfrica where workers are demanding betterwage increases and housing allowances seems to be having little effect on theforex markets. However, if the strike is drawn out or becomes violent it mighthave an influence on investor sentiment causing the Randto weaken.

The MPC (Monetary Policy Committee) are meeting again in September todiscuss what action needs to be taken with regard to the repo rate.Expectations have been revised. Previously the investor consensus was that theMPC would hold the REPO steady at 6.5% but it has become apparent that in thepast few days they are leaning more toward the chance of a rate cut.

On Wednesday this week, we saw the JSE ending in the red as investorsonce again became more risk averse in light of new data released that showedthat an economic slowdown is still on the cards. In light of the news goldclimbed by nearly 3% while investors took funds from high yielding equities andinvested in the safety of gold.

The USactivity is a leading indicator of the South African Rand. What happens in the US markets is usuallyan indication of investors appetite for risk. Because South Africa is a high yielding carry tradecurrency, as risk aversion increases so shall the Randweaken.

This week there have been strong bear tendencies in the US market withthe Dow Jones falling for more than four consecutive days while losing over 310points in the same time frame.

Further news was announced in the US that indicates an economic slowdown. Data was released by The Commerce Department that the trade deficit hadwidened to its largest deficit in the past 20 months.

All in all, the outlook for the South African currency is stilluncertain. Most of the volatility around the Randcan be subscribed to investor sentiment and not on the raw facts.

Composed by Paul Gerber

:: Note: The above exchange rates are based on"interbank" rates.
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The South Africa Rand traded between 7.33 and 7.45 to the US Dollar during 23rd and 30^th July 2010. The Rand also traded between 11.35 and 11.52 to the British Pound in the same time period.

The South African Rand held its ground this week against all major currencies. Many economists still feel that the Rand is over-valued and that this strength will cause a slow down in South African exports. This slow down will have a negative impact on the already low employment rate as jobs will need to be cut for businesses to survive this period.

This week we saw a reduction in the volatility of the Rand. Investec’s Group Economics economist Annabel Bishop said that the volatility in the rand has been significantly reduced since April due to the proactive management of liquidity by South African finance and monetary authorities.

The Bureau for Economic Research (BER) at Stellenbosch University said that the rand has been trading rather flat against all major currencies this week and is expected to start weakening toward the end of this year. BER expects the Rand to settle around 7.75 to the dollar and 9.72 against the euro around the last quarter of 2010.

The BER maintains the view that the Rand will be weakening to a level of R8.00 to the dollar and more during the next 18months.

There was much speculation in the market this week upon the purchase of Nedbank by HSBC. The deal would require a significant purchase of South African Rand. This news caused the Rand to rally against the major currencies.

The Pound did surprisingly well on Friday upon the release of positive GDP data.

The second quarter GDP figures were at 1.1%, significantly higher than the expected 0.6%. This news along with the strong retail sales data is painting a positive picture with regard to the global economic recovery.

The bad news however, is that all this good news will add to a positive investor sentiment which normally will increase investors risk appetite. This will prompt them to inject their funds into high yielding carry trade currencies such as the Rand to make profits over the spread of the weakening currency and the relatively high interest rates and thus further dampening South African exports.

 
Composed by Paul Gerber

:: Note: The above exchange rates are based on "interbank" rates.
If you want to transfer money to South Africa then please register/login or call us for a live dealing rate.

Make use of a Rate Notifier to send you alerts when the South African exchange rate reaches levels you are looking for.

There was much discussion this week about the strong rand and its affect on exports. Many believe that the Rand is between 10% and 15% overvalued which has been dampening South African exports over the past decade. This decrease in exports will most likely be translated into further job losses.

Although weakening the Rand to a value that is more export friendly might have positive effects on the economy, however there is also a negative side to the proposed measure.

An increase in exports and production will mean that inflation will once again become a concerning factor for the monetary policy committee (MPC). This will force the MPC to implement inflation targeting mechanisms such as wage constraints and interest rate hikes.

An alternative which was suggested by the by the Organization for Economic Co-operation and Development (OECD) was that the remaining exchange controls should be lifted. This will allow individuals to transfer money out of South Africa without going through the many layers of red tape.

If the MPC choose to follow the advice of the OECD it will help in weakening the Rand. The Treasury tried weakening the Rand earlier this year by purchasing some $2bn worth of currency but that amount was still not big enough to have the intended impact on the liquid South African Currency. Such continued efforts along with lifted exchange control should achieve the desired effect on the rand without causing excessive inflation in the economy.

 The MPC has also announced this week that it will be leaving the REPO rate unchanged at 6.5% due to lower inflation expectations during the remainder of 2010 and the coming 2011.

Gill Marcus, governor of the South African reserve bank also suggested that rate cuts may be in the cards for the future as she expressed her concern about the low interest rates around the world. High yielding currencies such as the Rand will see an increase in the inflow of foreign currencies which will cause the rand to strengthen even further. A cut in the REPO rate might cause some foreign investors to rather put their money elsewhere.

Marcus stated that “there is no benefit if you have a weaker currency if the benefits are eroded by inflation”.

Composed by Paul Gerber

:: Note: The above exchange rates are based on "interbank" rates.
If you want to transfer money to South Africa then please register/login or call us for a live dealing rate.

Make use of a Rate Notifier to send you alerts when the South African exchange rate reaches levels you are looking for.