Defying many predictions, the rand remained strong against most currencies during 2004. This strength was felt in different ways by JSE-listed companies. Those companies selling rand-sensitive electrical and electronic goods - such as Connection Group and JD Group's Hi-Fi Corporation - scored well from the currency's strength because the impact of lower rand prices of these goods wasn't lost on consumers. Of course, it meant that these and other companies had to physically sell greater volumes to keep turnover buoyant.
Precious metals, on the other hand, especially gold, had a torrid time, as the stronger currency resulted in lower rand earnings. And there's not much scope for selling significantly larger volumes of these commodities unless demand picks up substantially.
So where is the rand headed in 2005 and beyond? As dollar weakness persists, the rand is likely to remain strong against the currency. In May 2005 the dollar was experiencing a bounce on the back of better-than-expected US economic data, but this was likely to be a temporary phenomenon.
SA Reserve Bank governor Tito Mboweni is caught between a rock and a hard place as far as the currency's strength is concerned. Many economists believe it's virtually impossible to read where the Reserve Bank is going with interest rates. Despite attempts to weaken the rand by progressively reducing short-term interest rates, the currency steadfastly refused to budge.
Consensus appeared to be growing that another rate cut, coming soon after the entirely unexpected cut in April, would be announced soon. And this one may well be 75 basis points or greater. If this happens, and neither the Bank of England nor the European Central Bank cut rates, the rand may soften considerably against these currencies.
