Real Estate Investor Magazine South Africa July 2014 | Page 50

FOREX

BY JAMES PAYNTER

What Really Drives the Rand
…And What It Means For Your Offshore Investment

T

here are two major driving forces behind the Rand’s movements. The first is fundamentals, which is
largely what everyone looks at, but is actually a small part of the equation.

As a result, if we look at a history of the Rand since 1990 in the graph, a gradual depreciation of 5 - 6% per
annum (red and blue lines) has been necessary for South Africa to remain competitive.

Fundamentals
Nevertheless, fundamentals are important. They
determine the long-term trend of the Rand, because
the exchange rate is the adjusting mechanism to
compensate for the change in competitiveness between
ourselves and our trading partners over time.
However, this doesn’t explain the signif icant
fluctuations from the fair-value long-term trendline of
the Rand, as shown by the green arrows.
As can be appreciated, if you look purely at
fundamentals, and make your decisions based on these
alone, you can (and will) be caught out and suffer loss.
This is because there is a far more important driver of
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July 2014 SA Real Estate Investor

the Rand, one not based on funda Y[