The trade-weighted rand reached its best level this year on Wednesday contrary to the expectations of most economists.
Many economists said the rand’s bull run was over in January 2004 when the rand breached R7 per dollar and depreciated to R7,5750 on January 16 2004 after touching R6,09 on December 3 2003.
Its trade-weighted level on Wednesday, which is determined at 1030 local time, was 60,96, a 5,7% gain on the June 9 level of 57,6 and 21,6% above this year’s worst level of 50,11 touched on January 16.
The last time it was below 50 was on June 12 2003, when the index was at 49,98. The 2003 best level of 61,86 was reached on December 4 and today’s level was better than the 59,85 reading on December 11, when the South African Reserve Bank (SARB) last cut interest rates.
The four most important currencies of the 13 in the basket with their weights in brackets are the euro (36,38%), US dollar (15,47%), UK pound (15,37%) and Japanese yen (10,43%).
Prior to 2003, the government and SARB viewed the rand’s exchange rate as a given — to be determined by market forces.
This changed at the time of the February 26 2003 Budget when exporters started complaining about the strength of the rand, but Minister of Finance Trevor Manuel said the rand was still under-valued.
Since then, SARB governor Tito Mboweni has repeatedly affirmed that the rand remains undervalued.
The August 14 2003 Monetary Policy Committee statement said: “The level of the real effective exchange rate of the rand was still below the index values in early 2000, leaving domestic producers in a more competitive situation in export markets than at the turn of the century.”
On December 20, 2001, the rand reached a record worst level of R13,86 per dollar, R20,0866 per pound sterling and R12,4790 per euro and the trade-weighted rand was 36,09.
The rand finished 2002 at R8,59 per dollar, as the rand was the best performing currency against the US dollar in 2002.
The rand averaged R7,55 per dollar in 2003 compared with R10,51 in 2002, and R8,61 in 2001. The average so far in 2004 is only R6,69.
The rand was more volatile in 2003 against both the US dollar and euro than in 2002, but only half as volatile as in 2001.
This volatility is measured as the range between best and worst level for the year divided by the average for the year.
In 2003 the rand’s volatility against the US dollar was 39,6% compared with 39,1% in 2002 and 74,4% in 2001. In 1998 it was 35,5%, while in 1999 it was 10,6%. In 1995 it was only 5,0%. – I-Net Bridge