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Standard Bank Group
South Africa FX 08 April 2024

FX Monthly Chart Book

Shireen Darmalingam

  • The rand gained ground against the dollar in March, due to a combination of both local and global factors – from an intraday high of R19.10/$, it ended March stronger, at R18.88/$ (compared to R19.21/$ as at end February). It was 1.5% stronger against the dollar and the euro at the end of March, and 1.4% stronger against the pound. It traded in a range of R18.50/$ – R19.10/$. Several emerging-market currencies gained ground against the dollar in March. The best performers were the MXN, COP, PEN, PLN and MYR, together with the ZAR.
  • Changes in expectations for the upcoming US Fed rate cutting cycle continue to be a significant driver of currency movements. The Fed’s dot plot, released at the time of the March FOMC meeting, showed policymakers expecting 75bps in rate cuts this year; further, fewer rate cuts are expected in 2025 and 2026. In addition, a Fed policymaker had also commented that, should progress on bringing US inflation down stall, the Fed might not cut rates at all this year. Several others have noted that it would be advisable for the Fed to exercise patience before trimming rates. Our G10 Strategist is of the view that the Fed could cut rates thrice this year and he believes that, once the Fed starts cutting rates, we can expect the dollar to weaken.
  • The rand gained ground following the news that the SARB kept the repo rate unchanged at 8.25% in March, with a unanimous decision. The central bank noted that, at the current level, policy is restrictive, and consistent with the inflation outlook and the need to address elevated inflation expectations. We expect the SARB to start its cutting cycle in July. We foresee 1 percentage point of cumulative rate cuts, in 0,25 percentage point increments.
  • Our fair-value models and peer comparisons still imply the rand is slightly undervalued and is discounting a modest risk premium. For 2024, we forecast the rand to average R18.53/$, R20.21/€, and R23.66/£; on a trade-weighted basis, currency gains will likely remain limited. This is premised on a general election outcome that supports general policy continuity.

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