SA Rand (ZAR) to Struggle as USD Appreciation Continues into 2015

Rand outlook 2015

The outlook for the South African rand exchange rate complex (ZAR) is said to be soft in 2015 susceptible to a combination of soft domestic economic performance and broad-based US dollar strength.

However, potential gains against the euro remain a possibility in 2015.

In South Africa, this week saw the release of jobs, credit and consumer confidence data, all of which suggest that household consumption expenditure is likely to remain weak, undermining the overall GDP growth outlook.

As we head into the weekend we see the following rand rates.

Rand rate today (markets closed at the weekend):

The pound to South African rand exchange rate (GBP/ZAR) is at 18.2584.
The euro to South African rand exchange rate (EUR/ZAR) is at 14.4560.
The US dollar to Rand exchange rate (USD/ZAR) is at 11.6132.

NOTE, these are wholesale market quotations, your bank wil affix a discretionary spread when delivering currency. However, an independent FX provider will get you as close to the market as possible, thereby delivering up to 5% more FX in some instances. Learn more.

Volatility in the Short-Term

"USD/ZAR started this year at 10.49 and currently is right up at 11.63. Even so, this has been the least volatile year for the rand since 1999. But volatility is not over yet. As of writing, the Fitch rating decision was not yet out. And next Wednesday evening will see a crucial Fed statement, where a change of wording relating to the timing of the first hike would set the wolves among Santa’s reindeers," says John Cairns at RMB regarding the immediate outlook for the rand.

Barclays: Themes Dominating the ZAR Outlook

Turning to the 2015 outlook we note a USD-positive environment will likely continue to place downward pressure on commodity prices - a key export for the SA economy.

Improving interest rate yields in the US - driven by an expected 2015 interest rate hike at the Fed - is also seen as a key driving factor as ZAR is sold to fund US based debt assets.

As such the stronger dollar could is seen as one of the drivers of a lower rand exchange rate complex.

"Local issues certainly are weighing but the market ends the year as it started, hurt by the strength in the US economy and the accompanying gains in the US dollar and fears over Fed rate hikes. These themes will presumably remain relevant through 2015," says Cairns.

Also commenting on the outlook is Barclays:

"Our constructive USD view and sticky current account deficit make the ZAR particularly susceptible to Fed policy rate normalization. Moreover, the ZAR remains vulnerable from terms-of-trade, relative growth and real interest rate differential perspectives.

"However, the ZAR remains undervalued from both PPP and BEER metrics, and we believe that the ZAR can strengthen against the EUR due to narrowing interest rate differentials."

South African Economy Undermined by Latest Data Sets

South African economic releases

Above image courtesy of Barclays.

Turning to the economic picture, it has been a "bleak year for the economy," notes Cairns: "Growth was always going to be poor but was further constrained by strikes, Eskom and ABIL. In all, the economy probably grew only 1.4%. Our estimates point to a slight acceleration to 2.3% in 2015. We have pencilled in a far from inspiring 2.2% in 2016."

The Q3 Quarterly Employment Statistics (QES) survey showed 129K formal non-agricultural jobs were lost during the third quarter, equivalent to a decline of 1.5% q/q.

"The big decline was mainly driven by the community, social and personal services industry (which is mainly the public sector), which lost 132K jobs over the quarter after creating 142K jobs in the second quarter," says Peter Worthington at Barclays.

Barclays think a large part of the swings in public sector employment between the two quarters could be related to temporary jobs created for the administration of the elections in May this year.

By contrast, the private sector managed to create just 3K jobs over the quarter.

Overall, the weak employment growth bodes ill for income growth.

south african jobs