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Rand Bulls Snub Risks as ING Sees South African Currency Rising

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  • Rand Bulls Snub Risks as ING Sees South African Currency Rising

Analysts at Rand Merchant Bank and ING Groep NV predict the South African currency, the second-worst emerging-market performer in the past month, will rebound against the dollar by year-end as the pull of improving fundamentals and the hunt for yield support buyers amid lingering political and fiscal risks.

The rand fell to a six-month low of 13.8618 per dollar this week as tepid economic growth, an African National Congress leadership battle and the threat of a widening budget deficit exacerbate an emerging-market currency sell-off. That pessimism may be overdone and investors should look through looming risk events, such as the Treasury’s medium-term fiscal update and the ANC’s elective conference, and focus on sources of underlying strength like a narrowing trade gap, according to ETM Analytics.

“We would expect the rand to appreciate in a normal environment,” said Halen Bothma, a market analyst at ETM. “If you erase the risks like the ANC conference and the medium-term budget policy statement, the fundamentals are supportive. We are modestly bullish on the rand.”

Rand Recovery

The currency has fallen about 7 percent since touching an almost three-month high on Sept. 6 as traders bought dollars on the expectation that the Federal Reserve will raise rates later this year. The South African currency has scope to turn that around, according to Rand Merchant Bank strategist John Cairns, who sees it strengthening to 13 per greenback by year-end.

“Even with recent weakness, the rand is still trading within existing ranges,” he said. “There is still a high number of event risks that could easily see the recent rand moves reverse.”

Analysts agree that the currency will recover, with the median forecast in a Bloomberg survey for it to strengthen to 13.28 per dollar by year-end. Strategists have raised their rand projections through 2017 as the South African currency benefited from carry appeal, low inflationary pressures and the country’s longest run of trade surpluses in six years, which has helped to narrow the current-account deficit.

“There is a huge amount going on in South Africa, but the external environment is reasonably benign,” said Chris Turner, global head of strategy at ING. “We think dollar strength will have run its course by the end of the year and investors will get back to carry. The rand will likely benefit from those flows.”

The road forward is far from clear though. The ANC’s contest to elect a new party leader, already marred by violence and legal disputes, will culminate in a conference between Dec. 16 and Dec. 20, with the outcome highly uncertain.

Downgrade Threat

Amid hamstrung growth, Finance Minister Malusi Gigaba’s medium-term fiscal statement on Oct. 25 may show a weaker tax outlook. If there is a deterioration in the budget consolidation path, assessments by Moody’s Investors Service and S&P Global Ratings scheduled for Nov. 24 could see the country’s local sovereign debt downgraded to junk.

“All these factors have affected sentiment,” Bothma said. “But the mushrooming trade account and narrowing inflation are all supportive of the rand. The currency could strengthen to a range of between 12.50 and 13.”

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Crude Oil

Crude Oil Pulled Back Despite Joe Biden Stimulus

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Crude Oil Pulled Back Despite Joe Biden Stimulus

Crude oil pulled back on Friday despite the $1.9 trillion stimulus package announced by U.S President-elect, Joe Biden.

Brent crude oil, against which Nigeria’s oil is priced, pulled back from $57.38 per barrel on Wednesday to $55.52 per barrel on Friday in spite of the huge stimulus package announced on Thursday.

On Thursday, OPEC, in its latest outlook for the year, said uncertainties remain high in 2021 with the number of COVID-19 new cases on the rise.

OPEC said, “Uncertainties remain high going forward with the main downside risks being issues related to COVID-19 containment measures and the impact of the pandemic on consumer behavior.”

“These will also include how many countries are adapting lockdown measures, and for how long. At the same time, quicker vaccination plans and a recovery in consumer confidence provide some upside optimism.”

Governments across Europe have announced tighter and longer coronavirus lockdowns, with vaccinations not expected to have a significant impact for the next few months.

The complex remains in pause mode, a development that should not be surprising given the magnitude of the oil price gains that have been developing for some 2-1/2 months,” Jim Ritterbusch, president of Ritterbusch and Associates, said.

Still, OPEC left its crude oil projections unchanged for the year. The oil cartel expected global oil demand to increase by 5.9 million barrels per day year on year to an average of 95.9 million per day in 2020.

But also OPEC expects a recent rally and stimulus to boost U.S. Shale crude oil production in the year, a projection Investors King experts expect to hurt OPEC strategy in 2021.

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Crude Oil

OPEC Says Uncertainties Remain High in 2021

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OPEC Says Uncertainties Remain High in 2021

The Organization of the Petroleum Exporting Countries (OPEC) on Thursday said global uncertainties remained high going forward in 2021 but kept its oil demand forecast unchanged.

In the cartel’s latest oil outlook for 2021, oil demand is expected to increase by 5.9 million barrels per day year on year to 95.9 million barrels per day. The prediction was unchanged from December’s assessment.

However, OPEC and allies, said: “Uncertainties remain high going forward with the main downside risks being issues related to COVID-19 containment measures and the impact of the pandemic on consumer behavior.”

“These will also include how many countries are adapting lockdown measures, and for how long. At the same time, quicker vaccination plans and a recovery in consumer confidence provide some upside optimism.

Crude oil rose to $57 per barrel this week after incoming US President Joe Biden announced it would inject $1.9 trillion stimulus into the world’s largest economy.

But the recent rally in the commodity and stimulus announcement is expected to boost US crude oil output and disrupt OPEC+ production cuts strategy for the year.

The 2021 supply outlook is now slightly more optimistic for U.S. shale with oil prices increasing, and output is expected to recover more in the second half of 2021,” OPEC said.

Still, OPEC, in its forecast “assumes a healthy recovery in economic activities including industrial production, an improving labour market and higher vehicle sales than in 2020.”

“Accordingly, oil demand is anticipated to rise steadily this year supported primarily by transportation and industrial fuels,” the group said.

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Crude Oil

Brent Crude Oil Rose to $56.25 Per Barrel

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Brent Crude Oil Rose to $56.25 Per Barrel

Oil price surged following the declaration of Joe Biden as the President-elect of the United States of America last week after Trump’s mob invaded Capitol to disrupt a joint Senate session.

Also, the large drop in US crude inventories helped support crude oil price to over 11 months despite the second wave of COVID-19 crushing the world from Asia to Europe to America.

Brent crude oil, against which Nigerian Crude oil is priced, rose to $56.25 per barrel on Friday before pulling back to $55.422 per barrel on Monday during the London trading session.

Experts attributed the pullback to the rising number of COVID-19 cases in Asia with about 11 million people already locked down in Hebei province in China.

Covid hot spots flaring again in Asia, with 11 million people (in) lockdowns in China Hebei province… along with a touch of FED policy uncertainty has triggered some profit taking out of the gates this morning,” Stephen Innes, chief global market strategist at Axi, said in a note on Monday.

China, the world’s largest importer of crude oil, has joined the United Kingdom and others declaring full or partial lockdown to curb the second wave of COVID-19.

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