South African rand to hold most gains since start of 2018

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JOHANNESBURG, April 6 (Reuters) – South Africa’s rand is expected to hold onto most of this year’s gains against the dollar, supported by improving domestic economic growth, as long as the U.S.-China tariff tussle does not disturb global trade flows.

A Reuters poll of 30 strategists taken April 3-5 showed the
rand is expected to remain mostly resilient against the
dollar, around 11.93/$ by end-September, and to slip slightly to
12.13/$ by this time next year.

The currency began the year at 12.40 per dollar.

“What has been driving our rand forecast is that the
emerging market fundamental backdrop still looks strong,
particularly the interest rate and growth differentials,” said
Mike Keenan, strategist at Absa Capital. “That should help the
rand sustain this year’s gains.”

But he said getting some clarity on how much further
tensions between U.S. President Donald Trump’s White House and
China on trade will escalate is the wild card.

A back-and-forth dispute between the United States and
China, the world’s two biggest economies, over free trade has
triggered a market sell-off that has marred what is an otherwise
a brighter economic and political outlook for South Africa.

South Africa’s economy grew more than anticipated at the end
of last year, with growth expected to rise to 1.6 percent this
year from 1.3 percent in calendar 2017.

The South African Reserve Bank cut interest rates by a
quarter of a percent to 6.50 percent last month, but will likely
keep them there through next year.

“That, coupled with strong equity inflows and an improving
domestic growth outlook, underpins our constructive view on the
currency,” added Absa Capital’s Keenan.

South Africa has been riding a wave of optimism since
President Cyril Ramaphosa took office earlier this year, while
the country withstood a credit rating downgrade by Moody’s late
last month that could have triggered forced bond selling.

Last month’s survey had predicted the rand would weaken more
than 4 percent in 12 months as investors start to take profits
from an over-bought currency on doubts of how much Ramaphosa can
achieve in implementing reforms.

Ramaphosa faces an uphill battle in revitalising growth and
creating jobs in a country plagued with social inequality.