The ZAR Exchange Rate Thread

[Midnight_choir_drunk]

Not an argument I'm making, just included that as a remark on the argument you made i.e.

It's simply down to facts that if the rand is weak we are more competitive in what we do produce. The knock on effect should be that we produce more, export more and import less. If we don't that's entirely down to us not making use of an opportunity.

 

[Midnight_choir_drunk]

Just gone under 10.60. What heartbreak for the zim 2.0 dooms dayers.

Under 8 by middle of the year. I'll actually yawn if it does.

 

[zippy]

Is associating all the world evils to the ANC the true, sole reason you derive any semblance of fortitude to survive the day ?

South Africa's economic faults lie absolutely in the hands of the average citizen. To face up to our flaws means accepting we are a uncreative and generally lazy people. And entitled mass of victim and loser mentality, self loathers. To pour all the blame of our woes into a government is not only convenient it's typical.

The fact that people are blaming everything on the govt sends a signal to the world that South Africans are incapable of innovation without being mothered by their govt. Other countries don't have a govt which is any more competent than the ANC govt, but these countries succeed in spite of the handicap of their politicians.

There are many successful South African business operating both in and outside of SA. Unfortunatly the story of their success is drowned out by the whining, useless, dependant, self loathing majority(black and white)

 

[MKFrost]

But lets see what happens in a couple of hours time (15:30) as that is usually the trend setter for the next week or so.

Rand shot up from R10.61 area to R10.73 area after the release of the Non-Farm payroll figures in the US which came in better than expected.

Currently trading around the R10.72.

 

[Devill]

Rand shot up from R10.61 area to R10.73 area after the release of the Non-Farm payroll figures in the US which came in better than expected.

Currently trading around the R10.72.

+- 10.74 atm.

 

[MKFrost]

When looking at the US$ I will venture that we might target R10.30/20 area. As mentioned above R10.65 area very important. If that breaks convincingly we should see R10.30/20, if not expecting a bounce to around R10.80.

The Rand did break through the R10.65 area but not convincingly as it could only muster R10.58 so as expected we bounced back up.

Was expecting R10.80 to hold off any such bounce but it could not for very long as it broke through and is now currently trading at R10.96.

Data out of SA this week has been a mix bag but the underlying message is that nothing has improved and added onto that the job losses are on the increase which is a clear indication that the underlying fundamentals are not improving and there is as such no fundamental reasons for the Rand to strengthen.

I expect that we will go back above R11.00. If the R11.00 barrier is broken the next stop would be the R11.60/70 area which will put us just below the high of 2008 which was at R11.84.

 

[Devill]

The Rand did break through the R10.65 area but not convincingly as it could only muster R10.58 so as expected we bounced back up.

Was expecting R10.80 to hold off any such bounce but it could not for very long as it broke through and is now currently trading at R10.96.

Data out of SA this week has been a mix bag but the underlying message is that nothing has improved and added onto that the job losses are on the increase which is a clear indication that the underlying fundamentals are not improving and there is as such no fundamental reasons for the Rand to strengthen.

I expect that we will go back above R11.00. If the R11.00 barrier is broken the next stop would be the R11.60/70 area which will put us just below the high of 2008 which was at R11.84.

Yeah i really hope that the ZAR does not go above R11.00 as that is the solid resistance level... after that a softer resistance at R11.25?

 

[MKFrost]

Yeah i really hope that the ZAR does not go above R11.00 as that is the solid resistance level... after that a softer resistance at R11.25?

Possible. The high for January was at R11.38, if we can hold below that there might be a chance for getting back below R11 [should we even cross R11]. If that however breaks then there is very little standing in the way in terms of resistance areas and I expect speculators to have a field day with the currency should that happen.

The biggest problem at this stage is that there is just no reason and or justification for the Rand to strengthen. Unemployment is at an all time high, strikes are at an all time high, government debt/spending is rising at an alarming pace, our deficit is busy getting out of hand, the trade balance took a massive blow and so it goes on and on.

The markets can live with all of the above as its all cycles but in order to turn a cycle there needs to be actions to rectify and or address these problems but unfortunately this is not happening. We are like the proverbial ship without a rudder.

Also thrown into this mix is the upcoming elections which adds a certain degree of uncertainty in regards to long term economic policies making investors take a wait and see approach at this stage and thus leaving the field wide open for speculators do as they please.

 

[Garson007]

I need it to stay below R11 for April!

 

[Garson007]

The biggest problem at this stage is that there is just no reason and or justification for the Rand to strengthen. Unemployment is at an all time high, strikes are at an all time high, government debt/spending is rising at an alarming pace, our deficit is busy getting out of hand, the trade balance took a massive blow and so it goes on and on.

Our currency is heavily undervalued according to the Big Mac Index and the World Bank's PPP calculations. Has been for some time and it's only got worse.

Our government deficit is not out of hand. 5% is not even close to overspending in a country that should be growing.

The latest current account numbers has the deficit shrinking!

 

[Devill]

The biggest problem at this stage is that there is just no reason and or justification for the Rand to strengthen. Unemployment is at an all time high, strikes are at an all time high, government debt/spending is rising at an alarming pace, our deficit is busy getting out of hand, the trade balance took a massive blow and so it goes on and on.

I wonder how much of a difference it will make if the mining strikes end. Also I was hoping for a more possitive input from the government to show that they would like to help stimulate local business with the ZAR weakening.... wishful thinking.

 

[Devill]

USDZAR: 10.78 at the moment.

 

[Garson007]

Good. Gooooood.

 

[MKFrost]

Our government deficit is not out of hand. 5% is not even close to overspending in a country that should be growing.

The latest current account numbers has the deficit shrinking!

A rising deficit linked to real growth is not a problem. In our case however we have a rising deficit with no real growth. In order to sustain our current deficit we require a growth rate of more than 5% and we are currently unable to even deliver on that. Our quarterly growth rates for the past 8 quarters (2 years) were 2.4%, 2.6%, 1.3%, 2.3%, 0.9%, 3%, 0.7% and 3.8%. Not even close to where we need to be.

An increasing deficit without actual growth is unsustainable no matter how you cut and or dress it.

THE budget deficit, which determines the level of state borrowing, deteriorated in 2012-13 from an estimated R170bn, or 4.8% of gross domestic product (GDP) at the time of the 2012 budget, to R184.5bn, or 5.2% of GDP, this year, the 2013-14 budget review showed on Wednesday.

Rating agencies have downgraded South Africa’s sovereign credit ratings, citing high budget deficits among their reasons for the downgrades.

http://www.bdlive.co.za/economy/2013/02/27/budget-deficit-widens-to-5.2-of-gdp

Over the last few years, the size of the US budget deficit caused considerable angst among investors and ‘prophets of doom’ obsessed over the national debt clock on Times Square ticking over relentlessly. In Congress, fierce budget battles were fought, almost pushing the US into defaulting on its debt.

However, South Africa’s deficit is now larger as a percentage of gross domestic product (GDP) in comparison to the US’s deficit, and the market’s leniency towards emerging economies with deficits has come to an end.

...

In the US, Federal spending trended broadly sideways for five years, while tax revenues improved in line with a recovering economy, therefore resulting in the Federal budget deficit being on track to fall below 3% of GDP this year. [i.e. kept spending in check while economy grew, bare bone basics]

Unlike the US, spending in South Africa has soared by 40% over the last five years, with the public sector wage bill doubling as a result of some 250,000 extra civil servants being employed and salary increases well above-inflation. Welfare grant spending also rose rapidly over this period. [i.e. increased spending and slower growth so essentially increased spending on top of decreased income]

http://www.cover.co.za/investment/sa-budget-deficit-exceeds-us-deficit

In regards to the current account numbers, not sure how you get to them helping to decrease the deficit....

South Africa’s current-account deficit widened to 6.8% of gross domestic product in the third quarter, the biggest gap in more than five years.....

The rand has plunged 18% against the dollar this year. Subdued international demand has left manufacturers struggling to take advantage of the weaker currency to boost exports.

"If it were not for the revision in the previous quarter, the deficit would have been 7.4%," Ilke van Zyl, an economist at Vunani Securities in Johannesburg, said by phone. "We need ever-increasing financing to fund our external imbalances, which is a worry. It’s an ongoing symptom of the mismanagement of the country."

The rand fell as much as 0.5% against the dollar after the release of the data...

http://mg.co.za/article/2013-12-03-south-africas-current-account-deficit-widens-to-68-of-gdp

The percentage change in our current account for the past 4 years were 43.7%, -1.54%, -41.4% and -12.1%. Not very encouraging figures.

A currency's strength/weakness is in large determined by the underlying fundamentals i.e. economic activity of such country. Strong and positive underlying fundamentals leads to foreign capital inflows which directly supports the currency. In our case the underlying fundamentals are either getting weaker and or they stagnated. Hardly any are showing big improvements and as such our underlying fundamentals are not supporting any reason for large capital inflows. We are at this stage lucky in that we have not thus far experienced any large capital outflows which would have resulted in an even worse picture.

There is just no real compelling reasons for our currency to strengthen when looking at our underlying fundamentals, whether the currency is determined to be undervalued or not.

I'm not preaching doom and gloom, just stating that we are not on the right track. The talk is there i.e. plans released in the budget speech, but will the actions follow the talk? Until it does expect more of the same.

 

[Garson007]

A rising deficit linked to real growth is not a problem. In our case however we have a rising deficit with no real growth. In order to sustain our current deficit we require a growth rate of more than 5% and we are currently unable to even deliver on that.

Nonsense. Your growth rate doesn't need to be anywhere close to your deficit rate (unless you want to pay back all your loans the following year). To sustain our current deficit we can have worse growth than we have now and still sustain it.

Our quarterly growth rates for the past 8 quarters (2 years) were 2.4%, 2.6%, 1.3%, 2.3%, 0.9%, 3%, 0.7% and 3.8%. Not even close to where we need to be.

There we are in agreement, but concern over the Debt to GDP ratio isn't one of the reasons.

An increasing deficit without actual growth is unsustainable no matter how you cut and or dress it.

Of course, but that's not actually happening. Our deficit isn't growing in percentage terms and the growth rate was better than expected.

In regards to the current account numbers, not sure how you get to them helping to decrease the deficit....

I meant the current account deficit was less than expected.

The percentage change in our current account for the past 4 years were 43.7%, -1.54%, -41.4% and -12.1%. Not very encouraging figures.

It isn't. Yet, Australia has made it work with an overvalued currency.

A currency's strength/weakness is in large determined by the underlying fundamentals

That's what we all hope, but speculators play an increasingly large role.

Strong and positive underlying fundamentals leads to foreign capital inflows which directly supports the currency.

Unless the speculators drive the currency into the ground.

In our case the underlying fundamentals are either getting weaker and or they stagnated. Hardly any are showing big improvements and as such our underlying fundamentals are not supporting any reason for large capital inflows. We are at this stage lucky in that we have not thus far experienced any large capital outflows which would have resulted in an even worse picture.

How does Australia make it work?

There is just no real compelling reasons for our currency to strengthen when looking at our underlying fundamentals, whether the currency is determined to be undervalued or not.

Yet, the relative costs just do not add up - irrespective of the fundamentals.

 

[MKFrost]

Nonsense. Your growth rate doesn't need to be anywhere close to your deficit rate (unless you want to pay back all your loans the following year). To sustain our current deficit we can have worse growth than we have now and still sustain it.

Maybe so but for how long? What you are implying is that we can grow at say 1% while me maintain an ongoing deficit of say 5%. Try doing that on your monthly budget and see for how long you can keep going.

The deficit is what the government is in the red with. Without an increase in income i.e. growth and or without a cut in spending it will never get better and in the long term is thus unsustainable.

Our deficit isn't growing in percentage terms and the growth rate was better than expected.

Going from a surplus of 0.9 in 2008 to a minus of 5.1 is in my terms growing. Agree the last three readings have been very close to each other so no real growth there but also no improvement either.

It isn't. Yet, Australia has made it work with an overvalued currency.

Overvalued and or undervalued have little effect, the actual value is what counts and Australia is on the opposite side of the coin with a currency that is to strong and almost on parity with the Dollar.

 

[Garson007]

Maybe so but for how long? What you are implying is that we can grow at say 1% while me maintain an ongoing deficit of say 5%. Try doing that on your monthly budget and see for how long you can keep going.

I'm exaggerating. However 2.5% at 5% is sustainable. It would see the Debt to GDP ratio grow to 61% (assuming tax revenue is 30%) and the percentage of the pre-deficit budget for loan interest repayments would rocket to 13% (given a 6.5% coupon rate) - that is of course more than the deficit in of itself (having a nett negative effect on the budget), so worrying - but not critical; especially given that it only crosses the threshold after 20 years (if starting with zero debt).

If the growth recovers to anything north of 2.5% and they keep the budget growth as is, the deficit will obviously tend towards zero after a period of time.

The deficit is what the government is in the red with. Without an increase in income i.e. growth and or without a cut in spending it will never get better and in the long term is thus unsustainable.

Let's see where we are in ten years. I highly doubt the Debt to GDP ratio will hit north of 60%. I also highly doubt our annualized growth over the period will be below 3%.

 

[Devill]

10.7000 at the moment.

 

[akescpt]

I guess overseas travel is a no go at these rates..

 

[Drifter]

Yeah, or imports. I need to import Software for my car, and at this rate it's just way too expensive.