The rand completed what has been a one-way trip against the dollar during 2013, hitting 10.58 on the last day of the year – its worst level for the year and the highest close for the dollar/rand since 2001. Looking back, the low of 8.42 at the beginning of 2013 seems a long, long way off. Since the start of the year we have seen further rand weakness, with the market closing in on 11.00 to the dollar, 15.00 to the euro and 18.00 to the pound. What does the balance of 2014 hold in store for us? An update of the dollar/ rand fair-value model provides some important pointers in this regard: º Firstly, the dollar/rand has broken above the hatched fair-value area (between 9.46 and 10.34 as at mid-January 2014). ºSecondly, the blue (polynomial) Trendline B has crossed above the red (linear) Trendline A for the first time since 1996. ºAnd thirdly, the market has broken above the resistance trendline joining the extreme highs of 2001 and 2008. If you look at the history, this is pretty significant, as a clear break above fair-value has tended to signal a move well above this area (into overvalued territory) before retreating again. Coupled with this, the clear break above the resistance trendline joining the extreme highs of 2001 and 2008 also suggests further dollar strength (rand weakness) in the months ahead. Apart from global jitters which continue to impact the local currency, the domestic economy is not in a healthy state, with the extremely high current account deficit and the funding of this going forward being of major concern. And then, of course, we have the unsettled political and social landscape, which can be expected to result in increasing nervousness leading up to the elections in April. Overall therefore, while there could be some pullbacks, the outlook remains bearish and volatile, with the rand expected to make new multiyear record levels against the dollar in the months ahead. For more specific forecasts over the short, medium and long term, go to www. forexforecasts.co.za/go/ ZAROutlook CAPTION James Paynter is the head market analyst at Dynamic Outcomes
