Q People’s Daily Online:

The exchange rate of rand against the dollar has seen its ups and downs since 2015. Some changes are intense and sudden. What is your forecast on the rand for the next five years? Do you see the uncertainty remains?

A RANDALL RHATEGAN: Short-term currency volatility is impossible to predict. Sometimes the volatility can be linked to specific events but other times the causes are not apparent. If one excludes short-term volatility and assumes that the rand is currently trading around fair value, I would expect it to depreciate marginally each year.

LISA XIE: We do not have an explicit long-term forecast, but we certainly think the worst is behind us. The rand has been undervalued for a number of years and is at the weakest levels we’ve seen historically.

While we are anticipating a downgrade, we believe it has been mostly priced into the weaker rand. The gradual improvement of the current account forms the basis of our expectations.

The wide deficit — which has essentially left the rand vulnerable to low commodity prices and has weighed on consumer confidence — has shown signs of improvement. It appears that export volumes are benefiting from the weaker rand and will continue to do so in the medium to long term.

BOB WEKESA: The turbulence in the rand is based on at least two factors: the global economic downturn and South African political fundamentals. These two factors remain uncertain for the foreseeable future. The corollary is that the rand will remain unsteady as long as the global situation remains turbulent and the South African political situation continues on the fractious path it is currently experiencing.

EDDIE MBALO: The slump in the rand value is caused by many factors in the global economy, but what we also know is that in the past few months, it was mainly caused by domestic uncertainties related to how the economy is managed and political uncertainty. We have seen some improvements earlier this month but it is very clear that unless certain steps are taken to assure investors of the stability of our political system, our current wows might be with us for a little longer.

BARNABY FLETCHER: The rand has always been a relatively volatile currency due to its free-floating and highly-traded nature. This volatility has been exacerbated over the past year as markets react to ongoing political and policy uncertainty.

Confidence in South African Finance Minister PravinGordhan — appointed in December 2015 — should help the rand start to recover some of its losses against the US dollar over the next few years, while greater political certainty after the election of Jacob Zuma’s successor as president of the ruling African National Congress (ANC) in 2017 will help ease volatility.

KENNY CHIU: It is submitted that the rand will continued to be under pressure due to political uncertainties and structural economic constraints. Currency risk remains the biggest challenge faced by anyone conducting international business with SA.

Having said that it appears that China and SA are determined to address this concern as witness at the FOCAC Summit in December 2015 where Investec and the Export-Import Bank of China concluded a strategic cooperation agreement aimed at facilitating export finance, project finance and the internationalisation of the Chinese Renminbi.

Although information remains sketchy but I anticipate that there will be some sort of hedging mechanism between yuan and rand which, if launched, will provide greater certainty for bilateral trade between China and SA.

TEBOGO LEFIFI: Some of the factors that put pressure on the rand were temporary — the worst drought in 20 year is expected to come to an end this quarter — and this could relieve pressure on rising prices and inflation.

As far as power shortages are concerned, SA can expect some relief in 2017 when the next unit of Medupi and the four units at Ingula pump, which are expected to start adding more than 1,000MW watts of electricity, will all come into operation by 2017.

The South African Reserve Bank (SARB) has committed to some key priorities, which include restoring electricity supply, managing SOEs and reducing strike days in SA. The SARB in March started acting by increasing rates to 7% to maintain price stability and curb inflationary pressure.

The rand’s fall in 2015 was led by three major factors — the slowdown in China’s economy, unexpected changes in finance minister appointments, and the severe drought faced by the SADC.

Technical analysis, which gathers expectations from currency analysts and traders, places the rand at R15.51/dollar by the end of 2016 and R18.95 by 2020. The outlook on the rand is less grim.

JEREMY STEVENS: The rand remains a commodity currency; we believe that commodity prices are unlikely to stage a substantial turn round anytime soon.

In fact, one of the key reasons why the Chair of the Board of Governors of the Federal Reserve System (Fed) Yellen indicated that the Fed should proceed with caution in hiking interest rates because of growth concerns over China specifically.

If the Fed doesn’t hike because of growth concerns over China, then one has to assume that commodity prices will continue to struggle. As a result, apart from a valuation perspective, we do not believe that macroeconomic environment has changed substantially to justify a substantial shift in a currency and bond view over the medium term.

However, as pointed out, we do believe that the risk of a major currency blowout, due to especially the Fed surprising with more aggressive policy stance, has reduced. Whereas before we were looking for the rand to weaken to R16.50/R17 towards June, we now see less risk of that occurring.

Locally, event risk remains in place as we head into mid-year. These events include SA’s rating review by S&P (in early June), but also Moody’s that visited SA recently. However, from especially a bond market perspective, we believe that non-investment grade is largely priced in already. This view is reflected in our forecasts. Tactically, we believe that from a risk/return perspective there is little value in increasing rand exposure below 15.00 against the dollar as we head into June. Put differently, we believe that the rand will struggle to maintain a foothold below 15.00 into mid-year.

Towards the end of this year, we see the rand strengthening. Strength is likely to be driven predominantly by higher domestic interest rates and current account compression.