The rand’s near-18% move between a best level of R6,2348 a dollar on January 6 and R7,5750 on January 16 makes it unlikely that the rand’s volatility this year will be less than 30%, but the very stable year of 1999 started equally poorly, as the rand traded between R5,665 and R6,31 in January 1999.
The January 1999 range in fact proved to be the range for the full year and the rand’s volatility against the United States dollar was only 10,6% after 35,5% in 1998. In 2003 the volatility was 39,6% compared with 39,1% in 2002 and 74,4% in 2001. In 1995 it was only 5%.
This volatility is measured as the range between best and worst level for the year divided by the average for the year.
A year ago, international credit ratings agency Standard & Poor’s (S&P) managing director for Europe, Middle East and Africa sovereign ratings, Konrad Reuss, said he expected the rand to be more stable in 2003.
That prediction may have only been delayed to 2004.
“In 2001 the rand was the worst performing currency among emerging markets, only to become the best performing currency last year. This highlights the rand’s tendency to overshoot on both the downside and upside. This year we expect the rand to be less volatile,” Reuss said on January 14 this year.
A look at the rand-per-dollar exchange chart shows that the rand tends to be remarkably stable after bouts of high volatility.
This was the case in 1987 after the 1984-6 period of rand weakness. The rand went from R1,1826 per dollar in March 1984 to R2,8069 in August 1985 after the Rubicon speech. It then recovered to R1,9703 in February 1986 only to weaken again to R2,8119 in June 1986 after a state of emergency was proclaimed to dampen protests related to the 10th anniversary of the Soweto riots.
In 1987 the range was from R2,2059 in January to R1,9156 in December, while the monthly average varied from R2,1171 in January to R1,9532 in December.
Similar stable years took place in 1990, 1995 and 1999. In 1990 the range was 18,9 South African cents per dollar from R2,67690 in April to R2,4900 in December, while in 1995, the range was 18,05 South African cents per dollar from R3,5200 per dollar in February to R3,7005 in May.
After a volatile January 1999 as a result of the Brazilian devaluation, the rand traded in a 35,75 South African cents range between R5,9335 per dollar in February 1999 to R6,2910 in May 1999. On a monthly average basis the range over the same period was only 14,8 South African cents per dollar from R6,2021 in March 1999 to R6,0541 in September 1999.
Most economists, including South African Reserve Bank Governor Tito Mboweni, say it is impossible to forecast the rand, as the South African foreign exchange market trades an average of about $10-billion every trading day.
Some economists say that the rand could be more volatile than normal this year as it is an election year, but so was 1999.
Other economists argue that the rand should be more stable, as on a real effective trade-weighted basis it is closer to its long-term average and therefore the least undervalued or overvalued it has been since 1995, when the rand was also remarkably stable.
Unfortunately only time will tell as to whether the rand will be relatively stable in 2004, but a start has been made on Monday, as the rand traded in only a 15 cent range between R7,17 and R7,32 per dollar compared with the January 16 range of 28 cents between R7,57 and R7,29. — I-Net Bridge