South African Rand Still Holding That Optimism: Nedbank

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The South African Rand has further appreciation potential as the country's new political settlement is yet to be fully discounted.

This is according to a new analysis from Newbank, the South African lender and investment bank.

In a new note detailing his expectations for the Rand, analyst Walter De Wet says, "tactically, we remain buyers of the rand".

The Rand has appreciated in value against the Dollar, Pound and Euro since early June when it became clear the country was headed for a multi-party coalition that excluded extreme left-wing parties.

"The local unit still reflects optimism about the local election outcome, in our view. As a result, it remains the case that the risk of substantial depreciation in the rand has dissipated despite the post-election reality settling into the local market," says De Wet.

De Wet's studies find that the Rand has outperformed its Emerging Market peers, and he finds evidence that domestic factors are providing a tailwind. He says this is directly related to country-specific factors; specifically, the election outcome.

"South Africa’s election outcome is still seen as positive by market participants. This is the case even if there are some reality setting into local markets after the cabinet announcement. As a result, we believe it remains the case that the risk of substantial deprecation in the rand has decreased. This would also be consistent with our underlying fundamental view that favours a stronger rand towards 17,20 over time," says De Wet.

But, the target is not guaranteed, with De Wet saying it now falls to the new administration to implement the policy measures to catalyse a move.