South African rand on a rollercoaster

The rand is significantly stronger than it was at the start of 2025, but ongoing uncertainty regarding United States trade policies will see the local currency’s volatility persist.

The latest round of policy uncertainty has hit the rand hard, as the United States has waxed and waned on its preferred tariff approach to China, one of South Africa’s largest trading partners.

Investec chief economist Annabel Bishop said the rand has been volatile amid this shake-up with US and Chinese trade relations, as well as the United States’ government shutdown.

“The US has vacillated between renewed threats on increased tariffs for China, then backpedalling on these, creating uncertainty for financial markets,” she said.

This uncertainty strengthened the US dollar recently, moving the rand back to R17.50/USD.

This is a significant weakening for the rand, which neared R17.00/USD last week. The local currency has since regained some strength and is now back to around R17.30/USD.

The US and China have experienced trade tensions since the start of 2025, when US President Donald Trump threatened to impose high tariffs on Chinese imports.

This resulted in a trade war between the two countries, during which tariffs on each other’s goods rose to as high as 145%.

The two countries eventually reached a deal with significantly lower tensions, but this did not last as long as many may have hoped.

Tensions rose again recently when the United States threatened to impose 100% tariffs on Chinese goods, with China warning it would retaliate shortly after.

“China’s position on the trade war is consistent. We do not want it, but we are not afraid of it,” a spokesperson for China’s commerce ministry said. 

“If the United States insists on going the wrong way, China will surely take resolute measures to protect its legitimate rights and interests.”

The two countries have seemingly reached a middle ground, with Trump saying via a Truth Social post, “Don’t worry about China, it will be all fine!”, although he did not elaborate further. He claimed the US wants to help China, not hurt it.

Bishop said risk aversion has risen as the trade war has escalated. “US policy remains unpredictable, with no certainty that this will subside, despite market expectations of a more predictable year in 2026,” she said. 

This comes as the US also continues to warn of layoffs for some public officials if its ongoing government shutdown does not end.

The United States government shutdown is currently on its fourteenth day as of Tuesday, 14 October, with little clarity on when it will reopen.

This has heightened uncertainty in an already volatile situation, which is likely to lead to more volatility for the rand.

“The rand neared R17.00/USD last week but weakened to R17.50/USD on Friday, before recovering somewhat today to R17.30/USD on the US’s more conciliatory tone, but volatility is likely to persist, and unpredictability in US policy,” Bishop said.

Good news for the rand

While the rand’s volatility is expected to persist as United States uncertainty continues, longer term trends show how far the local currency has come over the past few decades.

Reserve Bank Governor Lesetja Kganyago recently said the rand deserves more respect for its recent stability. The local currency has shown significant resilience in 2025 so far, starting the year at R18.82/USD and now standing strong at around R17.30/USD.

Kganyago told the Kgalema Motlanthe Foundation’s Drakensberg Inclusive Growth Forum that the local currency is settling down to a “more mature stage of life”.

“When people tell you the rand is a weak and volatile currency, encourage them to think again,” he said.

“I would also like more people to recognise that rand volatility has declined. Option-implied volatility is now at long-term lows.”

“Yet, outside of financial markets, most people still believe the rand is a highly volatile currency. The only problem with this view is that it no longer describes the facts in front of us.”

He attributed this, in part, to South Africa’s shift towards permanently lower inflation. This shift has become more pronounced in recent months as the Reserve Bank and National Treasury have been in talks to lower the country’s inflation target.

While no official change has been announced yet, the Reserve Bank said at its July Monetary Policy Committee (MPC) meeting that it now prefers inflation to settle at 3%, the bottom of the official target range of 3% to 6%.

“As we have often argued, our inflation rate is out of line with our peers and competitors. Most advanced economies target 2%,” Kganyago said.

“Emerging markets used to be much higher, but nowadays they commonly target rates between 2% and 4%, with a middle-income median of 3%.”

“We have stuck with a 3% to 6% target range for 25 years – a quarter of a century – but this range is too high and too broad. It has left us as inflation outliers.”

He explained that aiming for a high inflation rate results in South Africa’s prices rising faster than those of other countries.

This implies that South Africa’s rand needs to depreciate to compensate for the high inflation, keeping the country’s real exchange rate stable.

“The result is a kind of ‘damned-if-you-do, damned-if-you-don’t’ trap: either you get a perennially weaker currency, with all its disappointments, or you don’t, and you lose competitiveness,” he said.

“This no longer applies if you have an inflation close to that of your peers – as we now do.”

Kganyago and the Reserve Bank have been strong proponents of lowering South Africa’s inflation target for years, arguing it would bring immense benefits to the country.

This includes lower inflation and interest rates over the long term, as well as support for the government’s efforts to stabilise its debt trajectory.