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Standard Bank Group
South Africa FX 03 August 2022

FX Monthly Chart Book

Shireen Darmalingam

  • The rand’s performance against the majors was mixed in July; the rand was 1.3% weaker against the dollar in July and 1.9% weaker against the pound but was 0.6% stronger against the euro. The rand traded in a range of R16.22/$ to R17.30/$ in July and ended the month at R16.62/$ (compared to R16.26/$ at the end of June).
  • Eskom’s more intense loadshedding in July kept financial markets, and the rand, under strain. However, President Ramaphosa recently announced government’s approach in reducing loadshedding. Steps taken, to limit power outages and reduce the risk of severe loadshedding, include completely lifting licencing generation thresholds. Eskom will now also be able to buy excess power from private producers that have surplus power, as well as import power from other countries in the region. These much-needed reforms supported the rand towards month end. The rand also gained ground following the SARB’s 75 bps hike in the repo rate last month.
  • The rand will likely remain volatile in August, as has already proven the case. Still, it gained some ground this week as China’s response to US House Speaker Nancy Pelosi’s visit to Taiwan was not as severe as feared initially. Pelosi’s visit resulted in tensions between the US and China (which views Taiwan as a breakaway province). This saw some sell-off in risk-sensitive currencies such as the rand earlier this week.
  • Additionally, investors are keeping an eye on whether the US Fed will now be slowing the pace of interest rate hikes after the 75 bps increase in the Fed funds rate in July. Comments from several US Fed policymakers, including the Fed Chair, have fuelled hopes that the Fed would indeed be slowing the hiking pace, which has seen the greenback weaken somewhat. Investors will also be watching for any hawkish comments potentially flagging a tighter hiking cycle by the Fed, should inflation not trend lower as expected.
  • We forecast the rand at R16.00/$ by end-2022 and R15.65/$ by end-2023. It should average R15.96/$ and R15.81/$ in those years respectively. We are more bullish than the consensus which is at R16.25/$ for end-2022 and less bullish than consensus for end-2023 (at R15.40/$).

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