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South Africa FX 06 December 2022

FX Monthly Chart Book

Shireen Darmalingam

  • The rand gained against the majors in November; it was 7.2% stronger against the dollar, 2.7% stronger against the euro, and 3.1% stronger against the pound. The rand was particularly volatile in November, trading in a range of R16.89/$ – R18.52/$, ending the month at R16.97/$ (compared to R18.36/$ at end October); it averaged R17.49/$ in November.
  • The rand gained ground in November, together with other emerging market currencies, on the back of a weaker dollar and a recovery in risk appetite. The appreciation of the rand was also driven by the lower-than-expected inflation data out of the US which supports the case for a slower pace of interest rate hikes by the Fed. The rand ended the month below our end-of-year target. The rand will continue to take its cue from global developments, such as monetary policy tightening by major central banks. The Fed, ECB and BOE are expected to hike policy rates later this month.
  • The local unit has, since the end of November, been knocked by the developments around the assumed to be uncertain future of President Cyril Ramaphosa directly in the wake of the Phala Phala panel report. The rand weakened by more than 4% on the back of the probe into the possible violation of the Constitution by President Cyril Ramaphosa. The president had largely been expected to win a 2nd term as the ANC leader, and remain as SA president. The ANC’s NEC has since indicated its support for the president remaining in office. Parliament has now postponed the debate around the Phala Phala report to 13 December. Investors will be watching for new developments during this period of political uncertainty.
  • Local developments will continue to play a role in December; we expect volatility in the lead-up to the ANC elective conference later this month. The rand’s performance will also likely be affected by relentless loadshedding domestically, and further monetary policy tightening by the major central banks, as well as concerns about the resilience of commodities into the global growth slowdown underway.
  • We see the rand at R17.50/$ by year-end, and averaging R16.39/$ in 2022. It is expected to average R17.17/€ and R20.17/£ this year. Looking to 2023, our G10 strategist Steve Barrow foresees a partial reversal of the dollar’s gains, which underpins our forecast for the rand to strengthen further — to around R16.15/$.

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