Rand Still Has Fuel in the Tank Says Nedbank
- Written by: Gary Howes
Image © Pound Sterling Live
The South African rand has further room to strengthen after reaching key levels, according to research from Nedbank.
"Our immediate target of 16.50 for the USDZAR that we set in early December has been met," says Nedbank FX strategist Walter de Wet in a note released Friday.
Despite the forecast target being met, de Wet says it is "too early to turn neutral on the rand".
He expects "more rand strength, rather than weakness".
The bank says the rand is likely to test 16.00; "while it may not be a straight line, we expect the rand to test the 16.00 level".
However, beyond this target the currency's "runway is shorter... we would be very reluctant to extrapolate the rand strength into the future".
Nedbank's "extreme peaks" model suggests that if the rand passes $16.00, it reaches a level where "historically, the time to be bullish with any high conviction has passed".
Recent global geopolitical events support the rand by lifting commodity prices, according to the research.
Nedbank says uncertainty over the past two weeks “has already resulted in a higher gold price and aided the rand towards our target of 16.50 set in early December”.
The bank says platinum and palladium prices have also rallied strongly, noting that “since the start of December, the price for platinum has increased by 35% and for palladium by 20%”.
de Wet says stronger prices for South Africa’s key export commodities result in "an even stronger terms of trade".
While this does not guarantee a stronger currency, he says it "does make the currency more resilient to external headwinds and sharp selloffs".
