Warning that rand could hit R21.40 to the US dollar in 2024

Investec predicts in its severe down-case scenario for South Africa that the rand could reach R21.40 to the US dollar in 2024.

Investec chief economist Annabel Bishop said the rand has been under pressure the past week due to several factors weighing on the currency. These include:

• A strong US economy – Positive data on US retail sales, housing, industrial production, and manufacturing pointed to a resilient US economy.
• Inflation concerns – Sticky inflation in the US means the Federal Reserve is less likely to cut rates soon. The International Monetary Fund also warned about persistently high global inflation.
• Delayed rate cuts – The market now expects the first US rate cut in Q4 2024, with a possibility of no cut this year. Historically, the rand strengthens during US rate cut cycles, so the delay weakens the rand.

Another factor weighing on the rand is the ongoing conflict in the Middle East, which could further complicate things by raising oil prices and inflation.

The rand hit a month-long high of R19.37 against the US dollar on Friday, 19 April, due to geopolitical tensions following an alleged Israeli drone strike on Iran.

TreasuryONE currency strategist Andre Cilliers said this alleged strike triggered global financial volatility and led to significant movements in key economic indicators like oil, gold and the US dollar.

In addition, domestically, political uncertainty ahead of South Africa’s 29 May elections is keeping investors cautious, Bishop added.

Investec’s base case scenario forecast puts the rand at R18.20/USD for the second quarter of this year, with the rand expected to average R18.17/USD in 2024.

This scenario assumes that South Africa’s economic growth is modest but lifts towards 2.0% over five years on sufficient domestic policy support measures. However, growth is still limited somewhat by load-shedding and freight constraints.

This scenario sees the rand stabilise and strengthen somewhat, with inflation impacted by the course of weather patterns via food price inflation. 

In this scenario, a little expropriation without compensation occurs and has no negative effect on the economy, and there is no nationalisation.

It also assumes that the Russian/Ukraine war and Middle East tensions persist and do not exacerbate.

The extreme up case scenario puts the rand at R16.99/USD average for the year.

In this scenario, it is assumed that South Africa’s economic growth rises by 3% to 5%, then by 5% to 7%.

South Africa is assumed to have good governance and growth-creating reforms with structural constraints eradicated.

This scenario has no nationalisation or expropriation without compensation, and South Africa is only on the greylist for 18 months.

However, Investec’s severe down case for the rand this year sees the currency average R20.49/USD.

In this scenario, there is a lengthy global recession and financial crisis, with insufficient monetary and other support domestically and internationally. 

This scenario sees very high inflation, adverse weather conditions, and severe rand weakness. 

It assumes the government borrows from increasingly wider sources and sinks deeper into a debt trap. In addition, there is severe load-shedding and civil and political unrest. 

South Africa is blacklisted, and the Russian/Ukraine war widens into neighbouring NATO counties in this scenario.

Below is an overview of Investec’s forecasts for the rand/dollar exchange rate in 2024.

Forecast	Q1 2024	Q2 2024	Q3 2024	Q4 2023	Average
Severe down case	18.87	20.50	21.20	21.40	20.49
Lite (domestic) down case	18.87	19.00	19.20	19.30	19.09
Base case	18.87	18.20	17.90	17.70	18.17
Up case	18.87	17.50	17.20	17.00	17.64
Extreme up case	18.87	17.10	16.50	15.50	16.99