Dawie Roodt reveals his fair value for the rand

Renowned economist Dawie Roodt said his calculations show that the correct value of the rand is around R17.00 to the US dollar.

The rand had a volatile start to the year. At the beginning of January, it traded at R18.87 to the US dollar.

It strengthened to under R18.50 in the first week. However, it then weakened to R19.18 to the dollar on stronger-than-expected US jobs data.

From there, it strengthened to R18.34 but was once again weakened after President Cyril Ramaphosa signed the controversial Expropriation Bill.

It widened the political rift between South Africa’s two main governing parties and caused US President Donald Trump to cut funding to the country.

South Africa has seen outflows from local asset markets despite offering investors higher yields than many peers.

The rand is currently trading at R18.66 to the US dollar, which is widely seen as well below its fair value.

Roodt is one of the economists who believes the rand is oversold and should strengthen in the coming months.

He told Smart Money with Alishia Seckam that he created a model to calculate the rand’s fair value.

His rand value model includes numerous variables, including purchasing power parity and averages over time.

“I put all these values in one basket to calculate the correct value of the South African currency,” he said.

He highlighted that he does not think the rand will strengthen to R17.00 to the US dollar. A level of R17.50 is more realistic over the next year.

He added that the current level, where the rand often trades above R19.00 to the US dollar, is overdone.

Roodt highlighted that international developments, like decisions from US President Donald Trump, can significantly influence the local currency.

“Chances are good the rand will strengthen to below R18.00 to the US dollar over the next few months and go down to R17.50 after that,” he said.

He highlighted that it is important to note that the South African rand is always an undervalued currency. “It is just a bit more or less undervalued than usual,” he said.