An unexpected seasonal liquidity crunch for the dollar means the outlook for South Africa’s rand is anything but merry as the year approaches Christmas, Nedbank has told Bloomberg.
Senior strategists with the bank, Mehul Daya and Walter de Wet, have warned that funding requirements of large European and Japanese banks going into year-end, together with the Federal Reserve Bank of America’s tighter monetary policy, will probably lead to a greater demand for dollars and rising offshore funding costs.
Daya and De Wet sent out a circular to clients alerting them to the possibility.
Previously this year the pair correctly predicted that the rand could slip to more than R14 against the dollar as global financial conditions became more restrictive.
“Global dollar-liquidity shortages, both structural and seasonal, remain a key risk to the outlook for the rand,” they stated.
Daya and De Wet added that they expected the rand to remain volatile going into the festive season.
A weakening to R14.50 could come to pass in the short term as end-of-year pressures impact on the dollar.
In recent times the rand has proved to be the most volatile emerging market (EM) currency, losing 14% against the dollar, more than any of its EM-peers like Turkey’s lira, Argentina’s peso, and Russia’s ruble.
