Rand in 3rd place among EM currencies against the dollar

Source: 123RF

The rand is expected to perform well for the remainder of the year, with estimates for the end of the year ranging from R17,80 to R18,30 to the US dollar, according to currency expert Bianca Botes, director at Citadel Global.

“The rand remains one of only five emerging market (EM) currencies out of a total of 23 that has been trading stronger against the dollar in the year to date, having ranked third on the list during the past month.

"The relatively strong rand-to-dollar exchange rate range we foresee for the end of 2024 depends on certain variables and assumptions used, however, we believe there is room for the rand to gain even more ground - to end off the year much stronger than these levels if a few things work in the favour of the EM basket of currencies,” says Botes.

Explaining some of the factors influencing the relative strength of the rand, she says: “Yes, the formation of the Government of National Unity (GNU) was seen as positive by market participants and assisted in the unwinding of some risk premia that was priced into the rand.

"We have also seen some positive policy come to the fore. In the longer term, the rand will however take its cues from global events, specifically the dollar performance and announcements by the US Federal Reserve. The softer dollar is supportive of the rand.”

Botes says it is important to note that the rand’s relative strength cannot be attributed only to South African factors. “Locally we still need to see if the current state of electricity in the country can be sustained, that logistical matters such as Transnet can be resolved, and that further reforms can create a business-friendly environment to stimulate growth and employment.

"From a more holistic perspective, you need a risk-on environment and rising commodity prices for EM currencies - and especially those which are commodity driven such as the rand - to benefit.”

A look at global factors influencing the rand:

“Risk sentiment has flipflopped throughout the year, and when we see a risk appetite in the global sphere turn positive, the rand typically benefits from the yield-seeking behaviour.”

Botes says one of the most important factors influencing the rand is still the strength of the US economy, and the hopefully soon-to-change interest-rate cutting cycle of the US Fed that markets have been anticipating since the beginning of the year. “Specific events, such as the upcoming US election are sure to cause some volatility in the market.”

A recap of SA's challenges - and a glimmer of hope:

“South Africa's economic landscape was bleak for the better part of a decade. Gross Domestic Product (GDP) growth has averaged less than 1% per year, plagued by logistical challenges, crime, corruption, and gross mismanagement. The energy crisis eroded investor confidence and the political scene was equally troubling, leading to a loss of public trust. However, the formation of the GNU has so far exceeded expectations and offers some hope,” says Botes.

Since the new government's formation, bond yields have fallen dramatically, the Johannesburg Stock Exchange (JSE) has gained notable ground, and the rand has appreciated against the dollar - all signalling renewed investor optimism for South Africa, she says.

Reforms that offer hope include stabilisation of the energy supply, fiscal reform and discipline, greater private-sector collaboration efforts from the government, and an apparent surge in investment.

“These developments could mark the beginning of a sustained period of growth for South Africa.

"If the GNU can maintain cohesion and implement necessary reforms, the country could see a significant improvement in its economic performance over the coming years. This would not only enhance the standard of living for South Africans but also position the country as a more attractive destination for foreign investment.

"The coming months will be crucial in determining whether this positive momentum can be sustained and translated into long-term prosperity for the nation.”