Nedbank Sees Short-Term Rally, Longer-Term Pain for Rand in 2019

JOHANNESBURG (Capital Markets in Africa) – The rand’s wild ride isn’t over, according to Nedbank analysts Reezwana Sumad and Walter de Wet. A slowdown in global growth, an escalation in the trade war, an uncertain Brexit and higher global interest rates are just some of the risks the currency will face this year.

• Nedbank base case sees rand in range of 14-15 per dollar in 2019
• From a technical perspective, the USDZAR could rally toward 13 in the near term before eventually reversing higher; resistance seen at 13.85 and 13.20, support at 14 and 14.70
• NOTE: Rand weakened 0.7% to 12.9734/USD by 11:37am in Johannesburg
• “The rand is likely to remain one of the most volatile currencies in the world, and we expect currency volatility to persist and even intensify in 2019. Weaker China growth and a slump in commodity prices are also likely to weigh negatively on the rand exchange rate”
• Nedbank sees benchmark bonds due Dec. 2026 overvalued at current levels; sees fair value between 8.9% and 9.1%
  • Underweight on approach of 8.9% and overweight above 9.1%
• NOTE: Yield on benchmark 2026 bond rose 4bps to 8.79% Tuesday
• “South African government bond valuations appear stretched, and we look for a sell-off over a three-month period as a result of a deteriorating fiscal balance, a rising inflation differential and higher core rates following the sharp rally”

Source: Bloomberg Business News