The South African rand is starting to behave more like a commodity currency than an emerging market currency and can no longer relied on as a one-way bet, a survey conducted by global auditing and business advisory firm Ernst & Young’s Centre for Business Knowledge (CBK) has found.
This suggests that companies can no longer assume a continued real reduction in the value of the rand when planning and have to adjust to the reality of a stronger currency environment, Ernst & Young said in a statement on Friday.
The survey showed that the consensus view is that the rand will continue to strengthen against the dollar for most of 2004 and peak towards the end of the year, CBK business analyst Mark Wilson commented.
“In line with the rand’s fair trading value against major trading partners, the rand will begin to show signs of weakness in 2005,” he added.
According to the survey, the consensus forecast is for an annualised exchange rate of R7,45 per dollar, representing a strengthening of 1,6% over 2003, even though the rand is expected to end the year weaker.
The rand is seen depreciating by 7% in 2005, with forecasts ranging from 3% to 16,5%.
According to Wilson, there are a number of risks that could affect the forecasts for the rand.
“Potentially high risk factors such as terrorist attacks or regional instability, would, for example, increase the demand for safer havens and result in an outflow of investments from emerging markets,” he asserted.
He added that the elimination of the Net Open Forward Position (NOFP), sound monetary, fiscal and social policies, as well as a slower-than-expected global economic recovery suggest that future fluctuations in the currency market will not have as dramatic an effect on the rand’s value, as seen over the past three years. – I-Net Bridge