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South Africa FX 07 November 2023

FX Monthly Chart Book

Shireen Darmalingam

  • The rand had a poor start in October by losing ground against the dollar due to both local and global factors; it reached an intraday high of R19.63/$ during the month. However, it ended October stronger, at R18.68/$ (compared to R18.92/$ as at end September). While it was 2.8% stronger against the dollar, it gained 2.4% against the pound, and 1.9% against the euro. It traded in a range of R18.65/$ – R19.63/$ but was still amongst the better-performing emerging-market currencies in October, outperformed by only the RUB, PLN, and THB.
  • The rand is currently close to the upper limit of our fair-value range, supported by a weaker dollar and despite concerns around the fragility of the global economy and persistently weak domestic fundamentals. Indeed, it strengthened recently after weaker-than-expected US labour data for October which showed the US economy as losing steam as it contends with higher borrowing costs and stubbornly high inflation. The data further supports the case for the Fed to keep rates steady at its next FOMC meeting in December. Fed Chair Jerome Powell commented just last week that the cooling US labour market might be a reason for the Fed not needing to raise rates further.
  • The rand gained after the tabling of the Medium-Term Budget Policy Statement (MTBPS) last week by Finance Minister Enoch Godongwana who noted that “action is being taken to review and reconfigure the structure and size of the state, in line with the President’s commitment in the 2023 State of the Nation Address”. The fiscal strategy in the MTBPS prioritises reforms aimed at strengthening GDP growth, and proposes a strategy of spending adjustments based on policy priorities, and a reconfiguration and rationalisation of the state, which would include closing, or merging, ineffective entities and programmes. Further rand upside was in the offing after President Cyril Ramaphosa noted SA as having “turned the corner” in addressing SA’s energy crisis.
  • We expect the rand to average R18.45/$, R19.85/€, and R22.89/£ in 2023. On a trade-weighted basis, however, currency gains will likely remain limited.

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