R18, R19, R20 to the Dollar…
Some analysts have warned that the Rand could weaken considerably in the coming months after the US Federal Reserve announced that it will be cutting interest rates from the end of the month. Historically, such a move by the reserve has led to a decrease in the strength of the Rand.
Rand Merchant Bank currency strategist, John Cairns, says that the Rand may weaken dramatically in the coming months. He made the statement during a recent interview with Radio 702. Cairns says that current global economic conditions, along with rate-cutting by the United States, could soon deal a heavy blow to the Rand.
According to Business Tech, Cairns pointed out that the Rand has taken a tumble whenever the United States has cut interest rates. However, he stressed that, historically, the Rand has seen a slight surge in the first two months following rate cuts by the US Federal Reserve, but has then dropped roughly twelve months after the cuts. This is relevant as the Rand has recently strengthened slightly in recent weeks, rising from R15 to the dollar to R14. If previous patterns hold true, however, the Rand could be in for a rude awakening later in the year.
Additionally, Cairns argues that it is not the rate-cutting itself which poses the risk to the Rand, but rather the fact that rate-cutting often sends the message that the United States economy is facing problems. While Cairns says it is not guaranteed that the Rand will weaken in the coming months, he says that a worst case scenario would be that the currency dips to R18 or even R20 to the dollar.
According to Cairns, the South African rand lost 30% of its value within 12 months after the start of each of the last four US rate-cutting cycles and 40% of its value within 15 months.
Each time the Fed has cut rates, the US economy has slowed sharply. Each time the US has slowed sharply, the rand has blown out.
Article Source: https://briefly.co.za
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