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South Africa FX 13 February 2024

FX Monthly Chart Book

Shireen Darmalingam

  • The rand lost ground against the dollar in January, again due to a combination of both local and global factors – from an intraday low of R18.26/$, it ended January weaker, at R18.66/$ (compared to R18.36/$ as at end December). It was 1.6% weaker against the dollar, and 1.5% against the pound at the end of January, compared to the end of December. It was 0.1% weaker against the euro. It traded in a range of R18.26/$ – R19.10/$. Most emerging-market currencies lost ground against the dollar in January. The worst performers were the CLP, THB, KRW, MYR and PEN.
  • The USD was stronger in January after investors lowered their expectations of a March interest rate cut by the US Fed. Investors have also scaled back their expectations of an aggressive interest rate cutting cycle. Fed Chair Jerome Powell, together with several Fed policymakers, indicated that the central bank is likely to be patient before trimming its benchmark interest rate. Our G10 strategist Steve Barrow expects that, once rate cuts have been firmly communicated in 2024, the EUR/USD may weaken – to around 1.15 by December 2024.
  • Locally, easier loadshedding into the first few weeks of this year provided some support to the rand in the first half of January. We expect loadshedding and uncertain electricity supply to be alleviated this year despite the recent bouts of higher stages of loadshedding (due mainly to faults in generating units). The electricity minister has noted that, while there will be loadshedding this year, the stages are unlikely to be as severe as in 2023. Meanwhile, concerns about SA ports and the rail network are keeping the economy, and in turn currency, under pressure.
  • Our models imply the rand as currently discounting a moderate risk premium as well as the weakness in the relevant fundamentals. We do, however, see a compression of the risk premium later this year, which should see the rand ending the year on a firmer footing. Should the local elections (date still to be announced) yield a benign outcome, according to our expectations, it could result in some modest gains for the rand on a trade-weighted basis.
  • For 2024, we forecast the rand to average R18.44/$, R20.40/€, and R23.92/£; on a trade-weighted basis, currency gains will likely remain limited.

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