Rand outlook and forecasts: South African Rand is undervalued alleges prominent currency analyst

The South African Rand (Currency:ZAR) is undervalued at current levels says a prominent currency analyst.

The claim comes as RBS analyst Greg Gibbs tells us that the South African Rand is the worst performer amongst the world's leading 32 currencies after declining 15 pct in 2013.

Today has however been kind to the ZAR as the Chinese economy comes to the rescue:

• The British pound versus Rand exchange rate is 0.86 pct down on Friday night's closing rate at 14.9647.
• The euro versus ZAR is 0.94 pct higher at 12.9313.
• The US dollar versus South African Rand is 0.8 pct lower at 9.9126.

(Please Note: That these are spot market exchange rates - your bank will affix their own discretionary spread to the figures. However, an independent FX provider will guarantee to undercut your bank's offer, thus delivering more currency. Please learn more here.)

Outlook for the South African Rand is positive

Leander Dreyer, analyst at Jyske Bank, has said he is advising clients back the South African currency and bonds:

"We believe that ZAR is undervalued following the solid depreciation of the currency in recent years.

"For the currency to appreciate we believe that an improvement of the economic indicators and the economic balances is required. We expect to see a slow improvement of the economic indicators, which is crucial if investors' (too) negative view of South Africa is to change.
Given a small fiscal and monetary-policy scope, external help for economic growth is required.

"We anticipate that stronger global economic growth and the depreciation of ZAR will be visible in exports, manufacturing industry and the mining sector.

"With prospects of more moderate private spending and investments, this should narrow the current-account deficit, but also improve public finances since we anticipate stronger eco- nomic growth in 2014 than in 2013.

"We expect a holding-period return on the bond of 11.88% (bond and currency). Here, the holding-period return on the bond is 5.39% whereas we expect ZAR to strengthen by 8.53% against EUR."

Forecasts for the South African Rand

So where is the ZAR headed? The only way is up says Dreyer:

W"e believe that ZAR will strengthen by approx. 4% against USD at 12 months’ term. The strengthening must be attributed to our estimate that the depreciation of the currency has been too solid and that ZAR will regain some lost ground on the basis of slightly improved balances and that ZAR is in our opinion undervalued.

"Since we also expect that the dollar will appreciate against EUR, we anticipate that ZAR will ap- preciate by approx. 9% against EUR over the coming 12 months."