ADVERTISEMENT

Why South Africa’s Rand May Recover... Eventually

Why South Africa’s Rand May Recover... Eventually

It may take a while for the rand to complete a rebound from April’s record-weak levels against the dollar, according to Nedbank Group Ltd.’s Walter de Wet, who has analyzed the currency’s moves during and after previous selloffs.

South Africa’s rand is set to gradually appreciate against the dollar over the next six-to-nine months after weakening more than 4% in the last seven days, De Wet wrote in a client note on Friday.

His analysis is based on trading patterns during currency crises in 2001, 2008 and 2016, when a recovery from extreme levels to fair value took as long as 70 weeks. This month’s wobble has left the rand 6% weaker than at the pandemic’s outset in March.

Why South Africa’s Rand May Recover... Eventually

“Despite recent weakness, we continue to believe the currency is more likely to behave as it did in the past following extreme weakness, i.e., strengthen by some margin, in a volatile fashion, over weeks and months,” Nedbank’s De Wet said. “Patience is warranted.”

The Johannesburg-based lender sees fair value for the rand at 15.50 per dollar, or about 11% stronger than its current level around 17.30.

©2020 Bloomberg L.P.