South Africa's rand will be stable against the dollar by this time next year but faces a choppy few months before the US Federal Reserve starts cutting back its monetary stimulus, a Reuters poll found on Wednesday. Still, the rand will likely hover around current levels having already sold off about a fifth of its value since the start of the year.
"The rand has already undergone the bulk of the depreciation it is likely to face as the market has priced in the weakness associated with a country which is facing large external imbalances," said Camilla Sutton, chief currency strategist at Scotiabank in Toronto. She added that the rand should prove more stable in 2014 than it did over the past year.
The poll of over 30 currency strategists and analysts sees the rand trade about 1 percent firmer to 10.10 per dollar in 12 months from where it is now at 10.21. Apart from local labour strife, the other trigger that has proved costly for the rand was the Fed's first hint in May of intentions to reduce its $85 billion monthly stimulus programme. But a majority of US primary dealers polled by Reuters last month concluded the Fed won't start cutting back on those purchases until March of next year, which is likely to keep investors anxious in the meantime.
In an effort to protect the rand, the Reserve Bank plans to invest in the Korean won and the Australian and New Zealand dollars as it diversifies its currency reserves. But Christian Lawrence, an analyst at Rabobank, did not rule out the possibility of heavy losses ahead for the rand. "There is a divergence from the traditional underlying macro factors, but once the Fed starts tapering quantitative easing, the fundamental drivers would come back into play."