Rand Outlook for 2013 Remains Bearish

It has been a pretty choppy ride for the Rand the past year, and a difficult one for exporters and importers alike.

The question is – What does 2013 hold in store for us?

Based on our updated analysis, while the Rand has weakened for the second year running (after a sustained period of strengthening), don’t expect 2013 to see a reversal of this trend – the outlook for 2013 remains firmly Rand bearish.

Our fair-value model shows that, despite the weakness the past year, the Rand still ended 2013 in overvalued territory, with competitive fair-value being at 9.00 to the Dollar (hatched area between blue and red lines).

What is critical to understand is that, while over time, economic forces bring the Rand back to fair-value competitive levels, the movements of the Rand are not influenced by these rational forces (like exports and imports), but rather by mass speculative activity and sentiment…mostly by foreigners.

When these global investors/speculators are at ease and complacent, they invest in more speculative markets like the Rand (whether through bonds, stocks, money markets or forex). But when they panic (especially as global markets become more volatile) … as we saw 1998, 2001, and 2008, they grab their capital and run for security, and the Rand takes a beating.

These swings in sentiment from one extreme to the other (over smaller and larger degrees) result in the rhythmic law-abiding zigzag patterns found in financial markets, which repeat themselves over and over again.

To illustrate this fact, take a look at the orange Volatility Index below the R/$ graph – this shows periods of high and low volatility on the US stock market (shaded in pink and green respectively). Notice how periods of high volatility have coincided with Rand weakness, while periods of low volatility have coincided with periods of relative Rand strength, and how extremes of sentiment have coincided with price highs and lows.

Our highly sophisticated Elliott Wave technology, which analyzes these actual historical patterns to forecast future movements shows that the Rand reached an extreme of sentiment in April 2011, and since then, we have seen a long-term change in trend which is expected to continue for the year ahead, likely further.

Overall verdict: Expect a swing back into under-valued territory (above 9.00) during 2013.

To stay ahead of the curve, and save yourself, time, energy and money go here to get the full picture, risk-free.

To your success~

James Paynter