News Column

Nam Dollar Seen Closing Year At 10,75 to U.S. Dollar

July 30, 2014

THE Namibian dollar, which is linked to the South African rand will close the exchange rate with the US dollar at the end of this year at 10,75.

This is the forecast of Standard Bank Namibia's Head of Global Markets, Chantal Poultney.

She said the South African Federal Reserve is moving closer to hiking interest rates and said this will keep the rand biased toward weakness over the medium term. The South African Reserve Bank Monetary Policy Committee hiked the repo rate by 25 basis points from 5,50% to 5,75% at its July meeting.

"We see the US Dollar/ Rand exchange rate ending third quarter 2014 at 10,60 and fourth quarter 2014 at 10,75. These target levels represent the mid-points of an expected trading range, and we fully anticipate that the currency will move to extremes above and below these mid-points," said Poultney yesterday.

The rand traded on the backfoot against the dollar yesterday slipping 0,48% from its New York close to 10,61 per dollar by 06h44 GMT, its weakest level in four days, Reuters reported.

Poultney said one risk which she felt could have contributed to some near-term rand weakness was a potential opening of a third renewable energy hedging window in August.

The South African minister of energy, in delivering her budget vote to parliament earlier last week, announced that the financial close deadline has been shifted to November 2014.

The postponement takes this out as a currency risk factor for now, Poultney said.

Poultney said as long as the tug from deteriorating growth remains so acute, the bank will pause when the inflation outlook and inflation expectations allow; and that any hikes will be measured, to the extent that any deterioration in the inflation outlook or expectations allows.

"We stick with our view that the South African Reserve Bank will be forced into a further 25 basis points of tightening this year, although we don't have a particularly strong conviction on the exact timing of such a move. This view is premised on the likelihood that some catalyst will emerge which will prompt enough of a deterioration in the inflation outlook and/or signal of an unhinging of inflation expectations to force the SARB to act," said Poultney.

Last month, the Bank of Namibia increased its repo rate by 0,25 percentage points to 5,75 on par with South Africa.

Last week, the Brazil, Russia, India, China, and South Africa (BRICS) nations announced further steps in the establishment of the long awaited Contingency Reserve Arrangement (CRA). It was announced that a treaty establishing the CRA had been signed.

"Given South Africa's relatively weak foreign exchange reserve position, comparative size of South Africa's current account deficit and the funding challenges that the country might face through the US Fed's policy normalisation process, the CRA safety net is rand positive," said Poultney.

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Source: AllAfrica

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