South Africa's rand set to plunge seven percent this year

South Africa's rand faces further pressure this year from a stronger US dollar, potential credit ratings cuts and political tensions ahead of the ruling African National Congress party's leadership conference in December. A Reuters poll of 36 strategists and economists from around the world published on Friday showed the rand could hit 14.53 against the dollar at the end of the year when the ANC is due to choose a successor to President Jacob Zuma.
The currency is currently trading around 13.58 per dollar, after having touched a four-week high at 13.50 on Thursday as the dollar retreated slightly against major currencies.
Peter Attard Montalto, emerging market economist at Nomura in London, said the rand would be driven down by a stronger dollar and Federal Reserve interest rate hikes, and by intensifying domestic politics in the second half of the year.
But he expects interest rates in South Africa to provide a cushion for the currency.
The repo rate is currently at 7.0 percent, with inflation running at 6.6 percent. The latest Reuters consensus of economists expects inflation to average 5.5 percent this year with no change to the repo rate expected.
The most bearish forecaster said the rand would touch 16.7 per dollar in December while the most bullish suggested the rand could still stretch its gains to 12.58.
Montalto said that even though he expected weakness against the dollar, the rand would fare better versus other high-beta emerging markets like Turkey and Mexico.
Other economists said the weak rand outlook could potentially be balanced by probable renewed interest in emerging markets this year, although that is still very uncertain.
Local politics and fears that South Africa's credit ratings could be downgraded drove much of the volatility in the last year and analysts expect more of the same in 2017.
Last month, Standard & Poor's and Fitch kept their ratings at BBB-, just one notch above junk status, with Fitch lowering its outlook to negative because of political risk and low economic growth. Moody's also left its rating, which is one notch higher at Baa2, unchanged.
A Reuters poll last month forecast GDP growth of 1.1 percent this year compared with an estimated 0.4 percent rise in 2016.