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Causes of Rand weakness by Magnus Heystek

The highlighted paragraph comes as a shock.

So what is causing the current run on the rand? The following factors are all lining up and already causing a bit of a gale:
The end of the commodity super cycle. Last month two large financial institutions, Citibank and Credit Suisse, published detailed reports on the commodity super cycle, both saying the cycle is dead and buried.
US Dollar (USD) strength. The USD moves in very large and pronounced cycles. I follow the ICE dollar index (code DXY on the New York stock exchange) which measures the USD against its six major trading partners. Since July 2011 this index has moved from 73 to its current level at 84 –a major move for the dollar.
SA leading economic indicators turning down. Earlier this week the Reserve Bank published its leading economic indicators, most of which had turned down in the first quarter of the year.
Deficit on the current account of the balance of payments. The slowdown in export volumes and a drop in prices of our major export products is causing havoc with the balance of payments and last year the country recorded its largest deficit on record.
Last week Treasury reported to Parliament that the budget deficit would average 6.5% of GDP over the next three years. This report, which attracted very little news analysis, points to a much higher deficit than was forecast in the budget, less than three months ago.
Outflow of foreign money from the local bond market. This, in my view, is the single most important indicator when it comes to the outlook for the rand. The rand has been propped up by the billions of foreign currency flowing into our bond market. Any return of this money back to home base, which could happen if global interest rates normalise, could be disastrous for the rand. Then the current strong gale would turn into a force-10 hurricane.

Smart investors can turn such a scenario into their advantage and profit by buying rand-hedge investments or taking some money abroad. There are a number of excellent offshore funds and exchange traded funds on the local market.

As Ian Liddle, chief executive of Allan Gray said on this website two weeks ago: invest at least 25% of your pension offshore. I think this number should be higher.

 

If commodities recover strongly (unlikely, these cycles last a very long time), then there might be a temporary uptick. But we still have the Zuma/Davies version of economics, plus inflation differential means the Rand will not get lucky for any sustained period. Historical Xchange rate vs. $ tells it all and I certainly wouldn't bet against the long term trend.

Your Xchange Rates till Monday.

Is this red candle due to SONA?

Some members of MyBroederBond may be members here but I would like to share my post on this forum as well as they are closed knit and do not like outsiders comments and band together to ridicule them.
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As I was saying earlier on. The ZAR corrects very quickly after each peak against the USD. This has now clearly happened and is ongoing. The daily highs have been lower and the daily lows has been lower over the past 4 weeks. Is this not an indication of the ZAR strengthening?
I pity those that panicked at the peak and went into USD. I stood my ground and stayed in ZAR.
Those posters that proudly shouted "I bought NEWUSD and DBXUS" are strangely quiet now as they nurse their wounds.

We will get back to the normal 2,5% pa weakening when this correction is done. This is not bad as investors will soon pile back into emerging markets and this seems to have started.

Emerged markets cannot grow at the rate of emerging markets and the savvy investors know this. The recent exodus was only due to fear of world markets tumbling but this is now unfounded as there are no similarities in this market to any previous market crashes. Will not happen.
The ZAR weakening to 25 soon is your own nightmare that only you will dream.
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I nearly did just that, but thanks to some level headed here and on moneyweb I held back. My plan is to still eventually move everything offshore mostly because I plan to be a perpetual traveller, but I'll most likely do it in bits and pieces to spread the risk and to keep taxes as low as possible.

Unless of course we miraculously hit R12/$, that would be very hard to resist!

I read somewhere today that the ZAR could quite possibly strengthen to below R13 or even R10 to the USD. I think it was Moneyweb.

Yes - I read that as well - but it was issued by a financial advisor or an "economist" or an actuary or a politician  So no real credence there