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Commerzbank’s forecasts on rand

Commerzbank’s forecasts on rand

Information is not investment advice

Commerzbank announced its short- and long- term projections on the South African rand. Let’s discuss it in detail.

Why may rand rise?

Analysts from Commerzbank anticipate the rand will stay at current high levels up to the end of this year and then soar at the beginning of 2021. However, the bank warned that that forecasts will come true, only if the two following conditions are met. First of all, the US dollar should follow its long-term downtrend further. Secondly, the stock market has to keep rallying upwards as the South African rand and equity markets are positively correlated. Indeed, the overall market sentiment has a huge impact on the rand. Since the coronavirus is being taken under control and the global economy is gradually recovering, there are all chances for the emerging market currencies to rise. Elsewhere, most world’s largest economies established low rates for longer, which will force investors to flow their capital to countries with higher yields such as Southern Africa. 

Why may rand fall?

However, concerns over the heavy debt levels in South Africa may push the rand down in the medium term. The country’s rate was downgraded to the “junk” level even before the coronavirus pandemic. Lockdowns, restrictions, and the overall economic downturn have made the debt crisis more likely to happen in South Africa. Anyway, investors can shrug off the risk of the debt crisis for now. The more urgent problem is US-China escalating tensions, which weigh on the overall sentiment and the stocks’ performance, which are closely linked with the riskier currencies like the rand. Moreover, the South African crumbling infrastructure such as electrical problems, doesn’t allow the country to recover fast. It will take a lot more time to rebound after the virus slump, which may have a negative effect on the rand as well.

Forecasts in numbers

Commerzbank anticipates the rand will fall a little bit, pushing USD/ZAR to climb from 16.66 on Thursday to 16.70, which is an upgrade from the initial Commerzbank’s forecast for USD/ZAR of 17.0.  As for the long term, the rand is going to surge higher by the middle of 2021 after driving USD/ZAR down to 16.30.

Technical tips

USD/ZAR is stuck in a range between 16.60 and 17.00. The move above the top of its range will drive the price to the high of August 17 at 17.50. In the opposite scenario, if it drops below 16.60, the way towards the support of 16.40 will be clear.

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