South Africa FX
04 November 2024
FX Monthly Chart Book
Shireen Darmalingam
- The rand lost ground against the dollar in October (-2.5%) due to a combination of local and global factors – from an intraday high of R17.86/$, it ended October weaker at R17.65/$ (compared to R17.21/$ at the end of September). It was stronger against the euro (+0.1%) and the pound (+1.6%). It traded in a range of R17.20/$ – R17.86/$ in October. Most emerging market currencies lost ground against the dollar in October: the CLP, BRL, MYR, HUF, and COP were amongst the worst-performing currencies.
- The rand weakened in October, together with several other EM currencies, on the back of global developments, losing ground against the dollar as the rand remains highly sensitive to shifts in the outlook for US monetary policy. The market’s attention turned towards the Fed’s rate path following the larger 50 bps interest rate cut in September. Several US policymakers recently expressed a desire to cut rates at a more gradual pace on the back of the risks that inflation could rise again. Some officials have indicated that policymakers still have more work to do with inflation. While inflation is still running above the Fed’s 2% objective, several factors continue to put upward pressure on prices. The US FOMC is due to announce its next interest rate decision on Thursday, just two days after the polls close on Tuesday. While the results may not be known by then, the Fed is largely expected to cut the Fed’s funds rate by 25 bps. Uncertainty around the US election will likely see the rand remaining volatile as we await the results of the election.
- The rand weakened slightly following the tabling of the Medium-Term Budget Policy Statement (MTBPS) towards the end of October despite government remaining committed to debt-stabilising primary budget surpluses. The MTBPS placed considerable emphasis on ongoing growth reforms, including several interventions to accelerate infrastructure spending. National Treasury has projected debt-to-GDP to stabilise at 75.5% in FY25/26; debt is expected to decline over the rest of the decade. However, economic growth is expected to improve over the next three years. With the MTBPS now out of the way, the rand will likely take direction from the upcoming US elections and the economic stimulus likely to be announced by China.
- Our forecasts have always assumed ongoing traction with, and a positive impact from, policy reforms, and have therefore generally already been more constructive than the consensus. The rand is currently stronger than our fair-value estimate of around R17.80/$. For 2025, we forecast the rand to average R17.35/$, R19.50/€, and R23.17/£; on a trade-weighted basis, currency gains will likely remain limited. We expect the rand to end 2025 at R17.40/$.
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