FOREX TRADERS

[Worn_Buffet]

Here's a hack copy & paste job from the Currency Trader piece.....sorry if it doesn't read exactly as it should....but ya get the gist....there's also a few charts in this article that I was not able to copy.

Gotta run....back a lil later on....


The Rand’s Rocky Road

South African economic fundamentals won’t be doing the country’s currency any favors in the months to come.


A slowing growth picture, weaker commodity prices, political instability, and emerging-market risk aversion are just a few
of the negative factors plaguing the South African rand (ZAR) in recent months. The currency has been on a weakening trend
since the start of 2008 and recently touched its lowest level since February 2003 as the mid-September global market panic
reached its peak (Figure 1).

In January, the U.S. dollar/rand pair (USD/ZAR) was trading as low as 6.69, but rallied as high as 8.36 by mid-September
during the global rush to exit positionsand limit exposure (Figure 2).

Even this year’s all-time record high move in the gold market in March failed to inspire rand bullishness — and gold has
always played a pivotal role in South Africa’s economy and currency. For years the rand was considered a classic
gold proxy trade, as South Africa was the world’s leading producer of the metal. Ashraf Laidi, chief FX strategist at CMC Markets, says the correlation between the rand and gold has been falling apart.

“In 2008, South Africa is no longer the number one gold producer,” he says. “In 2007, China became the number one gold
producer.” On-going issues with electricity power
outages, which power the gold mines, have been a factor in decreasing production from South Africa. South Africa’s mining production declined for five straight years into 2007. In 2007 alone, gold production fell eight percent.

Dwindling Growth:
After posting strong 5.1-percent gross domestic product
(GDP) growth in 2007, forecasts for 2008 are much lower.
Ideaglobal estimates the 2008 rate to be in the 3.3 to 3.8 percent range, while Moody’s Economy.com expects growth
around 3.4 percent. South Africa is generally regarded as the economic powerhouse of Africa, with strong trading flows with Angola, Zimbabwe, and Germany. Within the financial world,
investment-grade credit ratings and high internal interest
rates have attracted investment and carry trade flows in
recent years. However, currency strategists say the positive
fundamental perception is beginning to crumble.

“South Africa’s outlook has deteriorated since the start of
the year,” says Ruth Stroppiana, chief international economist
at Moody’s Economy.com. “As the business cycle slows and household spending eases under the weight of tighter monetary conditions, growth is forecasted to decelerate from the heady heights reached in previous years.”

Alvise Marino, emerging-market economist at Ideaglobal, says it has been a significant slowdown. “Four years of boom were fueled by consumer demand, and a lot of it was fueled by credit,” he says. “Over the past five years consumer-credit debt has grown relative to GDP. It’s at 78 percent right now. The fallout is an increase in personal bankruptcies.”
Inflation Recent government data reveals inflation is still pushing higher and is well above the central bank’s inflation target of 3 to 6 percent. “Inflation has been outside their band for a year now,” Marino says.


The most recent data available (August) revealed a 13.6-
percent CPIX inflation rate, which excludes mortgage costs.
South Africa’s official repo rate (the central bank lending
rate) stands at 12 percent, as the central bank has been in a
tightening mode since June 2006. However, economists see signs the South African Reserve Bank’s tightening cycle has peaked. In the intermediate term, the pullback in global commodity prices points to a more moderate inflation outlook.
Political upheaval: The political turmoil ushered in by the recent power struggle within South Africa’s dominant political party, theAfrican National Congress (ANC), only added to rand uncertainty. On Sept. 25, Kgalema Motlanthe became South Africa’s new president, replacing Thabo Mbeki. One-third of the Mbeki cabinet had resigned that week. “We do not expect any immediate change in economic policy, yet even the increased perceived risk of an upheaval of the business-friendly policy which Mbeki has stood for will be enough to keep investors wary of South African markets,” Marino says.

No relief in sight: There are few bullish silhouettes on
the horizon for South Africa and currency strategists see risk of further rand weakness. “The combination of moderating
commodity prices and the country’s deteriorating economic outlook will weigh on the rand in coming quarters,”
Stroppiana says. “South Africa is definitely in the
doghouse in terms of fundamentals,” says Brown Brothers
Harriman’s senior currency strategist Win Thin. He sees the potential for more depreciation in the rand ahead, with the USD/ZAR pair in a likely range of 8.00 to 8.50.

Waiting on Washington: With the fate of the U.S. financial
system extremely uncertain, global money managers could continue to shy away from emerging-market opportunities in favor of perceived “safe-haven” plays. “The global macroeconomic outlook and the forces associated with the U.S. government proposed intervention is going to have a pronounced
affect on ZAR trading,” says Larry Goodman, head of emerging-market strategy at Bank of America.

Of the potential $700 billion bailout package, Goodman says its specifics and how well it is communicated in terms of shaping global confidence will impact high-yield emerging-market currencies in the weeks and months ahead. {END}






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