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South Africa FX 03 February 2023

FX Monthly Chart Book

Shireen Darmalingam

  • The negative impact of unprecedented loadshedding, concerns about softer global growth this year, and several idiosyncratic as well as global headwinds have kept the rand under pressure in January and will likely underpin persistent rand volatility this year. The currency should find some support due to improving sentiment as global headwinds start to moderate, but this will be counteracted by ongoing domestic electricity supply constraints and uncertainty about Eskom’s ability to improve electricity supply. The market will therefore keep a close watch on whether President Ramaphosa can ease the electricity crisis. Just this week, he stated that the SA government might consider declaring a national state of disaster due to persisting power cuts. Additionally, he reportedly flagged a possible emergency energy plan to assist households and small businesses to install solar power and energy-saving devices, which should also provide some relief following a double-digit electricity tariff increase awarded by Nersa. Further information on the emergency plan should be made available in the coming weeks; the rand would react well to any positive developments regarding the electricity crisis.
  • The rand still discounts some additional risk premium from the political risk posed by December’s Phala-Phala developments, as yet unresolved, and whether the president can deal with corruption sufficiently and thereby steer the SA economy on to a firmer growth path.
  • The rand is arguably slightly undervalued and weaker than our fair-value estimate. We see the rand ending this year at R16.25/$ and averaging R16.61/$, premised on the dollar weakness forecast by our G10 strategist, Steve Barrow. It is expected to average R18.55/€ and R20.58/£ in 2023.

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