The dollar is currently strengthening, putting an end to severe rand overvaluation, according to FNB chief economist Cees Bruggemans.

Continued dollar strength in the coming months may see the rand pushing towards 7.50 against the dollar on the back of rising US interest rates, falling European interest rates, attractive US bond yields and good US growth, Bruggemans said.

However, beyond this short-term view there are two different schools of thought.

The one is the US currency will eventually be "shot down by the expanding global imbalances, giving rise to renewed rand strength".

The other view "considers global savings surpluses seeking a good deficit outlet as a structural reality, in which the US will continue to get favoured with capital inflows, allowing the dollar to remain strong (and the rand weak)," says Bruggemans.

The chief economist believes a rand value of between 6.50 and 8.00 against the greenback in the coming years would provide more balanced growth and is more preferable than renewed rand firming.

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