South Africa's rand should bounce back 5 percent in the next year after its hammering since August by investors worried about the knock-on effects of weak eurozone and US economic growth, a Reuters poll showed on Wednesday. Considered a high-risk asset, the rand is one of the world's most traded currencies and of late has tended to be sold by global investors at the first signs of bad news coming out of Brussels or Washington.
Analysts said the currency's roughly 20 percent decline over the last four months was overdone. We think that the market has excessively priced in negative news for the global economy," said Murat Toprak, a regional strategist at HSBC in London.
"If we assume that the market settles down and this 'risk-on, risk-off' parameter eases, we do not see any reason why the South African rand will trade at such weak levels against the dollar." The foreign exchange poll of 30 strategists, traders and economists, which is conducted monthly with other major currencies, saw the rand trading at 8.1 against the dollar in 3 months, 8.0 in 6 months, and 7.68 in a year. Seven of the respondents saw the currency trading weaker than 8.00 in a year's time.
Slightly weaker-than-expected retail sales data helped weaken the rand to around 8.08 on Wednesday, but analysts said the ability of the eurozone to resolve its debt crisis would still be the currency's biggest driver.
"Bad news from the euro area can always cause a pullback, particularly if the euro region fails to demonstrate urgent commitment in finding a solution," said Annabel Bishop, economist at Investec. The leaders of France and Germany will not leave this week's EU summit until a "powerful" deal is reached to arrest the eurozone debt crisis, Paris said on Wednesday, as the latest borrowing figures exposed the stressed state of Europe's banks.
"The EU leaders summit on Friday is key," Bishop said. "South Africa may go on holiday over the end of the year/start of the next but northern markets continue to operate and risk aversion levels will not go into hiatus," Bishop added.