The South African Rand and Brent Crude Oil Forecasts.

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There have been some arguments that the weakening of the South African Rand against the US Dollar will somehow stimulate the economic growth. However, this is rather a misleading advice as rand weakness raises inflation and so results in increased strike action (labour unrests) and higher wages. This article will give a snapshot of the exchange rate outlook (ZAR/USD), as well as the Brent Crude Oil outlook.

Exchange rates (ZAR/USD) Insights

The South African Rand has been one of the most volatile currencies amongst its peers, and continues to be rated amongst the “worst performing” currencies within emerging markets. Of course, there is no consensus on what a best performing currency is. The main driving factors behind this volatility have been ranging from domestic (i.e. labour relations) and international environment (i.e. US quantity easing and slow global economic growth) (Investec, 2014). The discussion relating to the level of the exchange rate has been around for a long time, with different financial institute sharing different views on future outlooks (see table 1 and 2).

The global economic outlook is still lacklustre; the IMF (2014) lowered the prospects for world economic growth for 2014 from an expected 3.7% earlier in the year to 3.4%. This decrease was mainly due to lower growth in the United States, China and emerging markets (SACCI, 2014). Additionally, the IMF expects this year’s domestic economy to grow by 1.7%.

There have been some arguments that the weakening of the exchange rate will somehow stimulate the economic growth. However, Investec (2014) reckons that this is a misleading advice as rand weakness raises inflation and so results in increased strike action and higher wages.

 

 

Oct 14 Nov 14 Dec 14 Jan 15 Feb 15 Mar 15 Apr 15 May 15 Jun 15 Jul 15 Aug15 Sep15
10.84 10.87 10.91 10.87 10.84 10.80 10.78 10.76 10.75 10.82 10.89 10.96

Table 1: Exchange rates outlook (ZAR/USD)

Source: (Nedbank, 2014)

 

Oct 14 Nov 14 Dec 14 Jan 15 Feb 15 Mar 15 Apr 15 May 15 Jun 15 Jul 15 Aug15 Sep15
10.25 10.05 9.85 9.80 9.90 10.00 9.65 9.75 9.85 9.45 9.55 9.65

Table 2: Exchange rates outlook (ZAR/USD)

Source: (Investec, 2014)

Brent Crude Oil Insights

For some time, the world oil prices have been quiet volatile. In the last two month, unrests in Iraq added upward pressure on the world oil prices, pushing the Brent crude oil prices to levels of $115/barrel (bbl) (EIA, 2014). However, oil prices are expected to soften in a medium term, owing to expected increase in supplies (see table 3).

The US Energy Information Administration (2014) projects world petroleum and other liquids supply to increase by 1.5 million barrel per day (bbl/d) in 2014, and by another 1.2 million bbl/d in 2015. Large part of production growth is expected to come from countries outside of the Organization of the Petroleum Exporting Countries (Russia).

At the same token, world oil consumption is expected to grow by an annual average of 1.1 million bbl/d in 2014 and 1.5 million bbl/d in 2015 (EIA, 2014).

However, it is worth noting that the geopolitical tension in North Africa, Black Sea and the Middle-East adds significant uncertainty into oil production outlooks.

Q1, 2014 Q2, 2014 Q3, 2014 Q4,2014 Q1, 2015 Q2, 2015 Q3, 2015 Q4, 2015
108.17 109.70 111.33 109.00 106.00 105.00 104.67 104.00

Table 3: Brent Crude price Outlook

Source: (US Energy Information Administration, 2014)

Further Reading:

EIA, 2014. Short-Term Energy Outlook, Washington: US Ernegy Information Administration.

IMF, 2014. World Economic Outlook, Washington: International Monatory Fund.

Investec, 2014. Economic Review and Outlook, Johannesburg: Investec Bank Limited.

Nedbank, 2014. Economic Outlook, Johannesburg: Nedbank Group Economic Unit.

SACCI, 2014. Business Confidence Index, Johannesburg: South African Business Chamber.

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