South Africa FX
13 February 2025
FX Monthly Chart Book
Shireen Darmalingam
- The rand gained ground against the dollar in January (by 1.2%) due to a combination of local and global factors – from an intraday high of R19.22/$, it ended January at R18.66/$ (compared to R18.89/$ at the end of December). This follows significant weakness in December. It also gained against the euro (by 1.1%) and against the pound (by 2.2%). It traded in a range of R18.32/$ – R19.22/$ in January. Most emerging market currencies gained ground against the dollar in January: the RUB, BRL, COP, PLN and CLP were amongst the best-performing ones; the ARS, IDR and INR were amongst the worst-performing EM currencies in January.
- The rand, however, had entered January 2025 on the back foot due to local and international events. President Cyril Ramaphosa signed the Expropriation Bill in January. US President Trump has since announced that the US would stop foreign aid to South Africa as a result of this Bill. He noted that the US “cannot support the government of South Africa’s commission of rights violations in its country”. Further, he indicated that an investigation would take place. President Trump noted that the land was being “confiscated already”. Unless a diplomatic solution is found to ease the tension between SA and the US, there is a risk of further, potentially more damaging, steps. Should SA subsequently lose its AGOA benefits, it should (in isolation) have a modest direct impact on SA’s growth trajectory. However, persistent risk and potential further measures could be more impactful. Some gains were noted towards January month-end.
- Uncertainty around President Trump’s recently announced trade policies has also seen the rand remaining volatile against the dollar in January. The rand also weakened amid the uncertain outlook for further interest rate cuts by the Fed this year. The past month’s movements underscore the ZAR's sensitivity to global and domestic economic factors. However, the rand should in the medium term reverse its losses against the dollar if the greenback weakens as is widely expected during this year. Ongoing reform traction should underpin an improvement in SA’s growth differentials, which too should be rand-supportive. SA’s key fiscal metrics might also improve marginally relative to peers, though investors may remain cautious amid persistent medium-term risks. The rand’s gains, however, will likely be limited on a trade-weighted basis.
- The rand is currently weaker than our fair-value estimate of around R17.80/$. For 2025, we forecast the rand to average R18.32/$, R19.05/€, and R23.18/£.
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