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Standard Bank Group
South Africa FX 03 March 2022

FX Monthly Chart Book

Shireen Darmalingam

  • The rand lost against the majors in February on the back of geopolitical tensions between Russia and Ukraine flaring up during the month. The rand was down 1,1% against the dollar in February, 0,7% against the euro and 0,2% against the pound. The rand traded in a range of R14.91/$ to R15.58/$ in February and ended the month at R15.44/$.
  • The conflict between the two has since led to Russia’s invasion of Ukraine, with further pressure on the currency possible in the coming days. Increased uncertainty about the pace of the withdrawal of stimulus by major central banks could see the currency remaining quite volatile. Central banks, however, are still weighing the risks of the Russia-Ukraine war and the rapid withdrawal of stimulus. The Fed has noted uncertainties posed by the Russia-Ukraine conflict. Nonetheless, the central bank has expressed that the need to remove pandemic-related support hasn't changed. The ECB and BOE are also monitoring the economic consequences of the conflict on their respective outlooks, which have been dampened. The ECB has indicated that it would do what is necessary to support the economy’s rebound.
  • The conflict has seen commodity prices rise, with oil rising significantly in recent days and posing upside risks to our inflation forecasts in the short-term. The current conflict between Russia and the Ukraine is unlikely to deter the SARB from hiking rates by 25 bps later this month.
  • We still expect some volatility given fluid Covid developments; however, the risks of Covid have dissipated over the past two months with further relaxation of restrictions noted since the beginning of the year. We cannot, however, rule out a potential 5th wave of infections this year. We note, however, that possible new variants may not cause severe disease, as was displayed by Omicron.
  • We see the rand ending the year at R15.00/$ and R15.15/$ by the end of 2023. It is expected to average R15.25/$ and R15.08/$. We are more bullish than consensus (at R15.93/$ and R15.27/$ for end-2022 and end-2023 respectively).

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