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Standard Bank Group
South Africa FX 16 January 2025

FX Monthly Chart Book

Shireen Darmalingam

  • The rand lost ground against the dollar in December (by 4.5%) due to a combination of local and global factors – from an intraday high of R18.91/$, it ended December at R18.89/$ (compared to R18.05/$ at the end of November). It weakened less against the euro (by 2.4%) and also against the pound (by 2.8%). It traded in a range of R17.72/$ – R18.91/$ in December. Most emerging market currencies lost ground against the dollar in December: the RUB, KRW, ZAR, BRL and MXN were amongst the worst-performing ones.
  • The rand erased all of its 2024 gains in December, hovering around its weakest levels since the local SA elections in May. It lost ground after hawkish comments from the US Federal Reserve about further US interest rate cuts depending on further progress in lowering US inflation. This saw the dollar strengthening to close to a two-year high. Indeed, US economic data implies that the US economy is proving resilient. Markets have reeled in their expectations about further US interest rate cuts this year. Rand losses extended into early January 2025 when the rand plunged further against the dollar after stronger-than-expected US jobs data. The rand took a knock, together with other emerging market currencies. Incoming US president Donald Trump’s intended policies, of increasing tariffs later this month, may further support dollar strength.
  • The rand weakened disproportionately against the dollar, with a more contained underperformance against peers and the real trade-weighted rand still broadly in line with its long-term average. The rand should in the medium term reverse its losses against the dollar if the greenback weakens as is widely expected later this year. Ongoing reform traction should underpin an improvement in SA’s growth differentials, which should be rand-supportive. SA’s key fiscal metrics might also improve marginally relative to peers, though investors may remain cautious amid persistent medium-term risks. The rand’s gains, however, will likely be limited on a trade-weighted basis.
  • The rand is currently weaker than our fair-value estimate of around R17.80/$. For 2025, we forecast the rand to average R18.20/$, R18.90/€, and R23.06/£.
 

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