South African currency is an attractive Buy; 'carry currency' characteristics prove supportive

Last Updated on Tuesday, 07 February 2012 10:55 Written by Sam Coventry Tuesday, 07 February 2012 10:52

The South African Rand is preferred to the Australian dollar at Barclays Capital. The Australian dollar / South African Rand exchange rate is 0.8% higher at 8.1659, while the pound South African Rand exchange rate is 0.12% higher at 11.974.

A morning foreign exchange note from Barclays Capital has recommend selling the AUD/ZAR exchange rate.

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"The ZAR is a higher beta to EUR risk than the AUD but has lagged the rally. The ZAR remains an attractive carry currency, and we are now looking for it to continue to catch the rally from behind if risk sentiment holds the Greek headline flow, as we expect. AUD/ZAR has more risk built in than other crosses such as AUD/BRL, but one could beta-adjust downward the relative position in the ZAR versus the AUD to be less market directional," says BarCap.

(A carry currency is, basically, one that benefits as investors divert money to the country in question in order to take advantage of high interest rates.)

In either case, the bank expects the South African Rand to outperform the Australian dollar; this given that the ZAR looks 13% cheap and the AUD 22% overvalued, according to the Barclays Capital BEER model.

Looking at the broader markets this morning we note that the FTSE is flat hovering just below 5900 as investors continue to focus on what’s happening in Greece, which is basically nothing.

The real deadline has been set at next Wednesday as this is apparently the time at which a resolution has to be agreed upon in order for the necessary legalities to be formalised ahead of the 20th March bond exchange. 

Otherwise its default time and Greece really will exit the euro. 

Even though the possibility of such an event is becoming more and more likely the markets have remained surprisingly strong. 

This is particularly interesting since many analysts have been increasing the likelihood of a Greek exit and the politicians there have been discussing it themselves.