Picture: 123RF/LEON SWART
Picture: 123RF/LEON SWART

The rand is expected to erase about a third of the 10% gain made in the past two months in the run-up to the May election, as strong volatility rattles the currency, a Reuters poll showed on Thursday.

The median forecast of more than 30 currency strategists polled between November 30 and December 5 suggests that the rand will have fallen about 3% in six months to R14.33/$, better than the R14.67/$ expected in November.

Rand back over R14/$ on Thursday
Rand back over R14/$ on Thursday
Image: Iress

Strategists were almost evenly split whether the rand will be closer to their fair value estimates this time in 2019, with most suggesting the rand was correctly trading firmer than R14/$ until about 12pm on Thursday.

The currency has gained more than 10% in the past two months due to better sentiment towards emerging markets. That led to hopes in November that the currency had room to gain a further 2% by this time in 2019.

Still, “the rand is expected to be volatile with the upcoming elections, due to continuing structurally low South African economic growth and tighter US monetary policy as 2019 progresses,” Nedbank economist Johannes Khosa said.

This is despite the economy expanding 2.2% in the third quarter, snapping out of recession after a revised 0.4% contraction the previous quarter.

SA is expected to grow 1.5% in 2019, far from being enough to solve a chronically high jobless rate of 27.5% of the labour force.

The rand also faces challenges such as prospects for higher interest rates in the US, likely to bolster the dollar, although a slower pace of hikes there will likely give the currency something of a reprieve.

The Fed has raised interest rates eight times since it began a tightening cycle in December 2015, including three times so far in 2018. It is widely expected to raise rates again in December.

Other challenges the country faces is an ongoing tussle between the world’s two biggest economies — China and the US — likely disturbing trade, while at home massive unemployment, social inequality and land reforms will weigh.