Rand starts 2024 on the backfoot

Investec chief economist Annabel Bishop said the rand – which is typically stronger around the turn of the year – has not seen much strengthening as domestic concerns continue to weigh on it.

Bishop said that, after reaching R18.23/USD last week, the rand closed at R18.66/USD on Friday, 5 January.

The currency experienced some volatility over the week, affected negatively by the Federal Open Market Committee minutes on Wednesday, 3 January, when it reached R18.84/USD.

“The rand, which typically experiences a stronger period around the turn of the year due to lower global financial risk-aversion, has not seen much strengthening as domestic concerns continue to weigh on it,” she said.

This is partly because South Africa’s updated Integrated Resource Plan (IRP 2023) was published in draft form last week and has not been met with market enthusiasm.

This is because the draft plan details that the country will likely have load-shedding until 2030 on an “electricity supply and demand deficit”.

“Enthusiasm had been building on a quicker end to load-shedding and greater private sector participation, but the country’s energy plan relies on an extension of coal and nuclear usage and insufficient renewable energy build,” she said.

The downbeat IRP 2023 report also comes as Eskom warned of severe load-shedding this year, highlighting that demand will exceed available electricity each day, worse than in 2023.

Bishop said congestion at Cape Town’s port has also worsened into 2024.

However, former Eskom CEO Andre De Ruyter estimates that there are 66,000 MW of renewable energy projects in the pipeline.

Still, the uncertainty of the energy and freight outlook has added to the lacklustre nature of the rand this year so far. 

In addition, the rand has not benefited substantially from the prospect of US interest rate cuts compared to other emerging market (EM) currencies.

The rand is still the fourth worst-performing EM currency year-on-year after Russia, Argentina and Turkey’s currencies.

She said the heightened political noise in the run-up to the national elections, likely in Q2 2024, and the uncertainty over the election and the nature of the coalition government are also adding to the weak nature of the domestic currency.

Bishop has previously said that a weaker rand is a key risk to South Africa’s inflation this year.