South African rand trading at three-year highs

CHART OF THE WEEK

Since the start of the year, emerging market currencies have risen on average 2% against the dollar. The South African rand has increased by more than 5% (to February 28th). This makes it one of the best performing emerging market currency, ahead of both the Mexican peso (+4.4%) and the Colombian peso (+4.3%). At 11.8 for one dollar, the rand returned to a level close to that achieved in mid-2015, before the depreciating movement linked mainly to concerns about China and the political situation in the country.

OUR ANALYSIS

Like the good performance of Latin American currencies, part of the rand’s appreciation in recent months is due to rising commodity market prices – traditionally correlated to exchange rates, as shown in the graph above.

In addition, the rand is being underpinned by positive political changes. Cyril Ramaphosa’s election as President hopefully opens the door to improvement in the business climate and to market-friendly reforms such as the recently outlined plans for fiscal consolidation.

Political risk in emerging countries could remain a source of volatility for emerging currencies in the coming months, particularly in Latin America. Andrés Manuel López Obrador is still at the top of the voting intentions for the presidential elections in Mexico, in July, and the outcome of the presidential elections in Brazil, in October, is still very uncertain. Developments in the economic situation in China will also remain a risk factor to be monitored, due to the consequences of a possible slowdown in commodity prices.

 

The opinion expressed above is dated 26 February 2018 and is liable to change.

This document is not pre-contractual or contractual in nature. It is provided for information purposes. The analyses and descriptions contained in this document shall not be interpreted as being advice or recommendations on the part of Lazard Frères Gestion SAS. This document does not constitute an offer or invitation to purchase or sell, nor an encouragement to invest. This document is the intellectual property of Lazard Frères Gestion SAS.


-- PDF --


Published by

mm

Julien-Pierre Nouen

Directeur des études économiques et de la gestion diversifiée