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South Africa FX 16 January 2024

FX Monthly Chart Book

Shireen Darmalingam

  • The rand gained ground against the dollar in December due to both local and global factors - from an intraday high of R19.13/$, it ended December stronger, at R18.36//$ (compared to R18.87/$ as at end November). It was 1.6% stronger against the dollar, 0.2% stronger to the euro, and 1.4% against the pound at the end of December compared to the end of November. It traded in a range of R18.10/$ – R19.13/$ and was amongst the top-performing emerging-market currencies in December, outperformed by the COP, THB, TWD, RUB, and MYR.
  • The rand has also drawn support from recent US Federal Reserve rhetoric of this central bank probably being done with its hiking cycle, with cuts now on the cards for 2024. The Fed hiked rates 11 times between March 2022 and December 2023. Inflation in the US has, however, cooled enough for the Fed to consider cutting rates later this year. Our G10 strategist Steve Barrow expects that, once rate cuts have been firmly communicated in 2024, the EUR/USD may weaken further – to around 1.15 by December 2024.
  • Locally, easier loadshedding over the festive season also provided some support to the rand. We expect the loadshedding and uncertain electricity supply to be alleviated this year. Meanwhile, concerns at the ports and rail network, kept the rand under pressure.
  • Our models imply that the rand is currently slightly undervalued and is currently incorporating a modest risk premium. However, it faces several global headwinds, including wars, elections in several countries, including local elections, as well as persistent investor concerns about weak trend growth and fiscal sustainability. Indeed, while we anticipate that loadshedding will improve this year, the unreliable performance of Eskom’s existing fleet poses risks. As such, risks to the growth outlook remain to the downside.
  • For 2024, we forecast the rand to average R18.40/$, R20.70/€, and R23.90/£; on a trade-weighted basis, currency gains will likely remain limited.

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