South Africa FX
05 March 2025
FX Monthly Chart Book
Shireen Darmalingam
- The rand lost ground against the dollar in February, albeit slightly (by 0.1%), due to a combination of local and global factors – from an intraday high of R19.04/$, it ended February at R18.69/$ (compared to R18.66/$ at the end of January). It also lost against the euro (by 0.2%) and against the pound (by 1.6%). It traded in a range of R18.29/$ – R19.04/$ in February. Emerging market currencies staged a mixed performance against the dollar in February: the RUB, CLP, HUF, COP and PEN were amongst the best-performing ones; the TRY, IDR, THB, ARS and INR were amongst the worst-performing EM currencies in February.
- The rand had entered 2025 on the back foot due to local and international events, which extended into February. Uncertainty around President Trump’s recently announced trade policies has seen the rand remaining volatile against the dollar in February. The rand came under renewed pressure when Eskom announced that it would implement loadshedding after 300 days of no power outages. This came on the back of plant breakdowns at two major power stations which needed a long time to repair. Eskom also indicated that it had used all its emergency reserves. A further bout of loadshedding was implemented towards the end of February, with Eskom ramping it up to Stage 6.
- The local currency was also affected by the postponement of Budget 2025. The postponement came on the back of a disagreement amongst parties within the Government of National Unity to implement a 2 percentage point increase in the VAT rate. The new Budget will now be released on 12 March 2025. Expectations are for the Budget to reflect continuity in terms of the government’s consolidation ambitions.
- Idiosyncratic risk premia generally are relatively subdued and we expect the rand to be guided largely by global developments. The rand should in the medium term reverse its losses against the dollar if the greenback weakens as is widely expected during this year. Ongoing reform traction should underpin an improvement in SA’s growth differentials, which too should be rand-supportive. SA’s key fiscal metrics might also improve marginally relative to peers, though investors may remain cautious amid persistent medium-term risks. The rand’s gains, however, will likely be limited on a trade-weighted basis.
- The rand is currently weaker than our fair-value estimate of around R17.80/$. For 2025, we forecast the rand to average R18.37/$, R19.05/€, and R23.02/£.
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