South Africa's rand will weaken against the dollar in six months after the US Fed starts to trim back its stimulus that has flooded emerging markets with easy money, a Reuters poll showed on Thursday. The rand has been among the emerging market currencies that have proved particularly vulnerable to the Fed's actions because South Africa depends on foreign capital to cover its large current account deficit.
Since the US Federal Reserve hinted in May that it could start winding down its monthly monetary stimulus, the rand has weakened almost 9 percent, hitting 10.51 per dollar in August. The rand has since clawed back some of its losses and is now around 10.0 per dollar. However, trading has been volatile, and analysts expect the weakening trend to resume if and when the Fed decides to start curtailing its stimulus.
Most economists polled by Reuters last month expect the Fed to start reducing its asset purchases in December. But Mohammed Kazmi, a strategist at RBS in London, expects "the US to come in and taper in March - that is where we are going to see further currency weakness." The poll of over 30 analysts expects the currency of Africa's biggest economy to weaken by a percentage point to 10.10 per dollar in three months, sliding to 10.20 in six months.
"For now investors seem to be in a fairly choppy environment ... that is why we see it hovering around current levels for now," added Kazmi. Weak economic growth prospects for South Africa could also depress the rand. Economists polled by Reuters cut its 2013 economic growth prospects last month to just 2.0 percent due to industrial strife, especially in the mining sector.
Interest rates are likely to be kept on hold at the four-decade low of 5.0 percent through to next year in effort to stimulate growth, while inflation is within the central bank's ceiling, averaging below 6 percent next year. Analysts say investors are likely feel more comfortable selling the rand against the dollar compared to other emerging market currencies, especially those whose central bankers have more room to adopt a hawkish stance.
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