Often, around the lunch table and at business meetings, I get asked the awkward “What’s going to happen to the Rand?” question.
And it’s on the increase – after all, a week ago, ex-Standard-Bank economist Chris Hart suggested in public that the Rand could reach R60 to $1 by 2019. For ages now, Moneyweb columnist Magnus Heystek has been saying R20 to $1 by year-end. Other economists are spending time in public rubbishing those calls.
This morning, I screen-captured the following two headlines, right next to each other, straight off the Moneyweb website:
Those two articles, published at basically the same time, were followed by this:
Which might equally have read “Rand crashes on Fed signal of June interest rate hike.”
Depending on which headline(s) you read this morning, the Rand’s movements are therefore being governed by:
- CPI data
- The Stock Market
- Political instability AKA Finance Minister Gordhan’s potential arrest
- The Federal Reserve
- All of the above
- None of the above
- Some of the above
- More of some, less of others
- More of others, less of some
- Some of the above, some of the time; others of the above, other of the time
- Sometimes those, sometimes other things
- *throws hands up in air*
Traditionally, I’m a fan of the risk-on-risk-off interpretation: that money flows affect exchange rates more than anything else, and global money moves in and out of developed and emerging markets in response to the Central Bankers of the Big Currencies (the Fed, the ECB, etc). So you’d expected the emerging market currencies to move mostly in concert.
I pulled some graphs of Bloomberg:
In the last month, the Rand (in orange) did far worse than the Turkish Lira (in blue), the Malaysian ringgit (in green), the Brazilian Real (in red), the Thai Baht (in purple) and the Indonesian Rupiah (in yellow).
In the last year, the Rand (in orange) did far worse than the Turkish Lira (in blue), the Malaysian ringgit (in green), the Brazilian Real (in red), the Thai Baht (in purple) and the Indonesian Rupiah (in yellow).
In the last five years, the Rand (in orange) did worse than the Brazilian Real (in red), the Turkish Lira (in blue), the Malaysian ringgit (in green), the Thai Baht (in purple) and the Indonesian Rupiah (in yellow).
I guess if you squint your eyes, then you’d see that the Emerging Market currencies mostly tend to move up or down together – but there is always variation for specific country risks, and the Rand has fared worst in that department.
So let me illustrate the polarised problem of narrativising that:
- If I was fervently opposed to the current government and its policies, I could say something along the lines of “You see? The other emerging market currencies may have weakened – but the Rand did SO much worse. It’s the ANC and that Zuma, I tell you. He’s effing it up. Look at how effed the Rand is! Dear God, how I wish to bloody hell that they’d drag him off to the Hague for crimes against humanity… <insert unabashedly racist tirade>”
- If I was anti-West, then I might say “It’s because of the neoliberal open market policies that Mandela was coerced into adopting in 1994! Our free-floating exchange rate – do you know that the Rand is easier to buy and sell than any of those other ’emerging market’ currencies? Those traders in London, they use us for their hedges and bets. The bastards – playing their little games with people’s lives and livelihoods… <insert anti-imperialist tirade>“
The trouble is: there are many opinions.
But they’re all just opinions. No formula or scientific method – just speculation, usually masked under complex layers of prejudice and confirmation bias.
Which is why I’m skeptical of those kind of “Rand falls on <insert news item/data point/rumour>” headlines.
Because you can get two headlines explaining the same movement, attributing it to different things, on the same day.
Rolling Alpha posts about finance, economics, and sometimes stuff that is only quite loosely related. Follow me on Twitter @RollingAlpha, or like my page on Facebook at www.facebook.com/rollingalpha. Or both.