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South Africa FX 03 November 2022

FX Monthly Chart Book

Shireen Darmalingam

  • The rand weakened against the majors in October; it was 2.7% weaker against the dollar, 3.5% weaker against the euro, and 4.3% weaker against the pound. The rand was particularly volatile in October, trading in a range of R17.57/$ – R18.58/$, ending the month at R18,36/$ (compared to R18.08/$ at end September); it averaged R18.11/$ in October.
  • The rand gained some ground following the tabling of the Medium-Term Budget Policy Statement (MTBPS) last week, but continued to take its cue from international developments, particularly in the lead-up to the US FOMC meeting this week. The dollar has strengthened as investors flock to safe-haven assets on expectations of further aggressive tightening by the Fed.
  • Local developments will continue to play a role in November; we expect volatility to continue into year-end. The rand’s performance will likely be impacted by ongoing domestic loadshedding and further monetary policy tightening by major central banks as well as concerns about the resilience of commodities into the global growth slowdown underway.
  • We still see the rand as undervalued, according to our medium-term fair-value estimates. While SA’s inadequate electricity supply and other growth constraints and risks will continue to limit gains, we see scope for the rand to end this year on a slightly firmer footing. We see the rand at R17.90/$ by December, and averaging R16.47/$ in 2022. It is expected to average R17,07/ € and R20,06/£ 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 R16,00/$.

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