July 6, 2018 / 5:55 AM / 9 months ago

South Africa's rand to cruise but trade spat may blow it off course: Reuters poll

JOHANNESBURG (Reuters) - South Africa’s rand is likely to cruise through the coming year but the outcome of a trade war between the United States and China could throw the currency off course, a Reuters poll showed on Friday.

FILE PHOTO: South African Rand coins are seen in this photo illustration taken September 9, 2015. REUTERS/Mike Hutchings/Illustration/File Photo

The survey, taken this week, indicates the rand ZAR=D3 will fluctuate in the next 12 months against the dollar, and while the medians showed it would remain around 13.50, the range of forecasts was wide.

According to the most bearish forecaster it will weaken to 15.00 per dollar while the most bullish saw it at 11.15.

Economists and strategists were divided on how far the dollar can keep strengthening but Piotr Matys, an emerging-markets currency strategist at Rabobank, said a liquid currency like the rand is likely to remain on the back foot.

“The dollar should remain strong as the Federal Reserve continues to tighten interest rates,” said Matys.

The South African Reserve Bank is expected to keep its repo rate unchanged at 6.5 percent until 2020. It cut its main interest rate by 25 basis points to 6.50 percent in March.

Last month, the U.S. central bank raised its benchmark overnight lending rate for the second time this year. It now sits in a range of 1.75 to 2 percent.

The Fed also upgraded its forecast to include another two rate rises this year, one more than projected in March.

“Another factor supporting the dollar against the emerging market currencies including the rand is this prevailing risk of a full-scale trade war between China and the United States,” said Matys.

The rand has lost all the gains made when markets cheered Cyril Ramaphosa’s new presidency at the beginning of the year, when many foresaw a “new dawn” that promised higher economic growth than under his predecessor Jacob Zuma.

But the economy had a bad start to the year, confirming the uphill battle Ramaphosa is faced with to turn around the nation’s fortunes and end social and economic inequality.

South Africa’s economy is expected to grow 1.7 percent this year and 2.0 percent next.

(For other stories from the July Reuters global foreign exchange poll:)

Polling by Mumal Rathore, Manjul Paul and Sujith Pai; Editing by Catherine Evans

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