What the South African rand should be worth

AlphaWealth’s Andrew Flavell has stated that the rand’s fair value average against the US dollar is R10.98.

Flavell made the calculation using multiple variables, and based the value on information available from January 2016.

“There have been five years of headwinds for emerging markets. In fact there has been a perfect storm for emerging markets with commodity-backed economies,” said Flavell.

“So while some may dub this the Zuma Effect, it really is a macro theme.”

What the rand should be worth vs the US dollar

January 2016 Implied USD/ZAR value
Interest rate differential R14.16
Cash rate differential R14.51
Inflation rate differential R9.55
Big Mac index R5.68
Fair value given average R10.98
Current spot R15.24

“At current levels, we are priced in line with the Russian Rouble,” said Flavell.

“Whether this is fair or not really depends on one’s view of the GDP growth forecasts, the ability of the government to be fiscally prudent, the commodity cycle, the carry trade, amplitude of the interest rate cycle, and foreign investment.”

Where money managers think the rand will go

Flavell said AlphaWealth also surveyed the managers that make up its equity hedge strategy locally, to gain insight in their rand vs US dollar predictions for 2016.

SA Hedge Fund USD/ZAR
A R15-R17
B R16
C R16
D R16.15

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What the South African rand should be worth