Rand has good chance of strengthening, say analysts

Despite a number of ongoing risks and structural imbalances in South Africa, the rand has a very good chance of strengthening impressively for the rest of this year and into 2009, say market analysts ETM.

They say, however, that levels approaching 6,50 to the dollar — should they be reached — would probably be difficult to sustain and the currency could well consolidate back to the 7,00 to 7,50 to the dollar range in the latter half of 2009.

“Just when it looked as though the worst-case scenario projections were playing out, the rand has made a solid comeback, recovering by nearly 9% against the dollar since mid-March,” notes ETM.

They explain that it is certainly no coincidence that the Dow recovery has also been of the order of about 10% since mid-March.

“Indeed, a number of global markets reversed direction at that time, including the yen [and] most other equity markets, as well as United States Treasuries. It is not surprising that this was when the Fed slashed interest rates by 75 basis points, sparking a recovery in global equities and an improvement in investor sentiment toward riskier assets,” they point out.

The analysts conclude that there is ample evidence of a resumption of the carry trade.

“The yen has weakened off its multiyear highs, the VIX index, a measure of risk aversion, has halved, and emerging-market currencies have strengthened across the board.” — I-Net Bridge

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