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South Africa FX 07 April 2022

FX Monthly Chart Book

Shireen Darmalingam

  • The rand gained ground against the majors in March despite despite geopolitical tensions between Russia and Ukraine. The rand was up 5.7% against the dollar in March, 5.9% against the euro, and 7.1% against the pound. The rand traded in a range of R14.40/$ to R15.56/$ in March, and ended the month at R14.63/$.
  • Commodity prices continued to increase over the past month on the back of the conflict between Russia and the Ukraine and has provided a buffer for the rand. The terms of trade are expected to remain strong this year.
  • The risks of Covid have dissipated over the past few months. The President has declared an end to the state of disaster which was announced at the beginning of the pandemic in 2020. Despite this and the easing of most restrictions, government has cautioned against a potential 5th wave of infections in the coming weeks. Should this materialise, we do not expect the new wave to be as severe as the previous waves. As such, it is less likely to cause significant volatility in financial markets.
  • We have updated our rand econometric fair value model; it assesses the rand as fairly valued for the prevailing economic setting, supported by the estimated, still elevated, terms of trade. However, the model implies some modest weakening of the rand’s estimated fair value in the medium term, depending largely on the resilience of global growth and the eventual outcome in Ukraine.
  • We forecast the rand at R15.00/$ by end-2022 and R15.15/$ by end-2023. It should average R14.96/$ and R15.08/$ in those years respectively. We are more bullish than the consensus (at R15.50/$ for end-2022) but less bullish than the consensus (at R14.92/$ for end-2023).

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