South Africa FX
02 October 2024
FX Monthly Chart Book
Shireen Darmalingam
- The rand gained ground (+3.5%) against the dollar in September due to a combination of local and global factors – from an intraday high of R18.02/$, it ended September stronger, at R17.21/$ (compared to R17.81/$ at the end of August). It was also stronger against the euro (+2.6%) and the pound (+1.4%). It traded in a range of R17.03/$ – R18.02/$ in September. Several other emerging market currencies gained ground against the dollar in September: the THB, MYR, ZAR, BRL, and IDR, were amongst the best-performing currencies. The RUB, ARS, COP, TRY, and HUF were amongst the worst performers in September.
- The rand strengthened, together with several other EM currencies, in September on the back of global developments, gaining ground against the dollar following a 50 bps interest rate cut by the Fed. The US FOMC noted having “gained greater confidence that inflation is moving sustainably toward 2%, and judges that the risks to achieving its employment and inflation goals are roughly in balance”. The Fed added that it is “committed to supporting maximum employment” in addition to bringing inflation back to its target. The substantial cut highlights concern among policymakers about the US labour market. Projections showed that a narrow majority, 10 of 19 policymakers, supported cutting rates by at least a further 50 bps over the two remaining FOMC meetings this year. Fed Chair Jerome Powell this week commented that the Fed would be lowering the Fed funds rate over time. Powell again emphasized the Fed as confident of inflation continuing to move toward the Fed’s 2% target. Powell also reiterated the US economy as remaining on a solid footing and noted the Fed as “not on any preset course” regarding lowering interest rates. The Fed next meets on 7 November; the debate is centred around whether the Fed may deliver another 50 bps rate cut or whether it would cut by a softer 25 bps.
- The SARB also cut the repo rate by 25 bps a day after the Fed cut rates. The MPC also considered a 50 bps cut, like the Fed, at that meeting. The committee agreed that a less restrictive stance was consistent with sustainably lower inflation over the medium term. The central bank lowered its inflation forecasts this year and next, while keeping its GDP forecast for 2024 unchanged. The rand held onto gains against the dollar following the interest rate announcement. The rand hit a 20-month high at month-end on the back of improved risk appetite, positive domestic sentiment, and dollar weakness.
- Our forecasts have always assumed ongoing traction with, and a positive impact from, policy reforms, and have therefore generally already been more constructive than the consensus. For 2024, we forecast the rand to average R18.21/$, R19.87/€, and R23.39/£ (which implies that it remains reasonably steady close to current levels through Q4:24) (more detailed forecasts are available on our research portal https://ws15.standardbank.co.za/ResearchPortal); on a trade-weighted basis, further currency gains will likely be limited after the substantial gains recently. The forecast risk is particularly high, with two-sided risks from both global and local factors (as set out in the attached report). The rand is currently benefitting from the support for commodities from the recent China policy stimulus as well as positive sentiment about the likely durability and impact of the government of national unity. However, adverse risks, including from geo-political tension, persist.
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