South Africa rand to weaken against the dollar in 2020

South Africa rand to dollar

Denmark-based Saxo Bank has published its financial predictions for 2020. Experts at the bank have made the predictions as ‘consensus-smashing forecasts’ that would ‘send shock waves through the markets, if they come to pass’.

The Bank amongst its ten predictions for 2020, predicts the South Africa rand to weaken to R20 to the dollar.

The Danish bank, in anticipating a year that will be marked by disruptions of the status quo, argues that investors should be ready for anything.

The experts at the bank, predicts that the European Central bank will hike rates, UK nominal growth doubling to 8%, Donald Trump announcing America First tax to reduce trade deficit, Oil and gas industry emerging as surprise winners amid the mania over environmental, social and corporate governance (ESG); and Stagflation taking hold, rewarding value over growth stocks.

Sweden unleashing “huge fiscal stimulus” to quell anti-immigrant sentiment, driving a steep rally in the krona; Asia launching new reserve currency to break its dollar dependence, were other predictions made by the bank experts.

In 2020, the experts have predicted that Hungary will leave the EU just as the democrats will win the U.S election in a vote led by women and millenials.

The bank said South Africa will be closing out 2019 with riveting news, both good and bad.

“The good news was that the nation’s beloved Springboks rugby team took home the World Cup trophy. Their last victory was in 2007, a year which ended with rand/dollar below R7, versus R15 now.

“In carry-adjusted terms, the rand has fallen far less – only some six percent, though with plenty of volatility along the way. That is a near miraculous feat, given the bad news.”

The ‘very bad news’ is the South African government announcement late this year that to continue to bail out troubled utility Eskom and keep the nation’s lights on, the bank said.

It noted that the budget deficit next year is projected to balloon to its worst level in over a decade at 6.5% of GDP, a sharp deterioration after the government managed to stabilise finances at a near-constant -4% of GDP for the last few years.

“Late 2019 saw some of the most generous credit conditions for emerging markets in history and the market somehow managed to absorb this news without jettisoning the rand to new lows for the year,” it said

“In 2007, the last time South Africa won the Rugby World Cup, GDP for the year was $309 billion in nominal USD. For the four quarters ending at Q2 2018, meanwhile, South African GDP was $338 billion in nominal USD.

Saxo Bank said that Eskom fiasco is the straw that will break the back of creditors’ willingness to continue funding a country that hasn’t had its financial or governance house in order for decades.

This will see the rand/dollar exchange rise from R15 to R20 as the country teeters toward default.

Credit: Bloomberg