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South Africa FX 06 December 2023

FX Monthly Chart Book

Shireen Darmalingam

  • The rand made a good start to November by gaining ground against the dollar due to both local and global factors, reaching an intraday high of R18.11/$. However, it ended November weaker, at R18.87/$ (compared to R18.68/$ as at end October). It was 1.0% weaker against the dollar, 5.3% weaker to the pound, and 4.6% against the euro at the end of November compared to the end of October. It traded in a range of R18.11/$ – R18.96/$ and was amongst the worst-performing emerging-market currencies in November, outperforming only the ARS and TRY.
  • The rand is currently only moderately weaker than our fair-value range, supported by a weaker dollar and despite concerns around the fragility of the global economy and persistently weak domestic fundamentals. The South African Reserve Bank noted, in its recent Financial Stability Review, loadshedding as posing a key risk to the financial stability of SA in the short-, medium- and long term. Further, SA remains on the Financial Action Task Force’s (FATF) grey list, and now for likely longer, which weighed on the currency in November. The SARB also noted the central bank as being in discussions with National Treasury to establish the viability of using the country’s foreign exchange contingency reserve account to fund government’s budget deficit.
  • The rand has also drawn support from recent US Federal Reserve rhetoric of this central bank probably being done with its hiking cycle, with cuts now on the cards for 2024. Meantime, recent data supports the Fed’s case for holding rates steady when it meets next week. Several Fed policymakers have indicated increasing confidence that policy is well positioned to slow the economy and get inflation back to 2%. Our G10 strategist Steve Barrow expects that, once rate cuts have been firmly communicated in 2024, the EUR/USD may weaken further – to around 1.21 by December 2024.
  • For 2023, we forecast the rand to average R18.40/$, R20.00/€, and R22.90/£; on a trade-weighted basis, currency gains will likely remain limited.

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