South Africa’s rand ready to rock

Following a strong performance in 2025, South Africa’s rand is expected to continue gaining momentum in 2026, with several factors beyond US dollar weakness supporting the currency’s strength.

Notably, unlike in 2025, factors other than United States dollar weakness are expected to give the rand a boost in 2026, including a re-ranking of South Africa’s risk and global disruptions set to play in the country’s favour.

Investec chief economist Annabel Bishop said the rand is continuing to see strength on its own this year.

This, she said, is as opposed to 2025, when the local currency rose 2.5% against the US dollar on average, while the greenback weakened by 3.3%, indicating that the rand lost ground last year.

However, in 2026 to date, the rand is already up 14.3% on average compared to the same period in 2025.

Meanwhile, the US dollar is only 8.7% weaker in 2026 so far, showing that South Africa’s currency has gained to a significant degree in its own right. 

Bishop attributed this, in part, to financial market investors reranking South Africa’s risk, with the country’s credit default swap rate now the fifth worst in the Emerging Market Bloomberg rating at 139.

This is a notable improvement from 350 ten years ago, when South Africa occupied the second-worst place.

Bishop highlighted increased military conflict in the Northern hemisphere as another factor boosting the rand.

This increased conflict, she said, has likely boosted risk-taking towards South Africa in 2026, given the country’s removed geographic position.

In addition, Bishop pointed out that South Africa has seen significant benefits from increasing South-South trade over the past year, which rose a notable 8% in 2025 compared to 2024.

In particular, she explained that the rally in the prices of precious metals, particularly gold and platinum, in 2025 has significantly benefited the value of South Africa’s exports.

This saw South Africa’s terms of trade rise over the past year, contributing further to gains in the rand.

The graph below, courtesy of Bisho, shows the rand’s performance from 2019 to present.

Risky rand

Bishop explained that increased risk appetite among investors has benefited the rand. This trend is likely to continue in 2026.

“Financial market risk taking improved, increasing foreign investor appetite for South African bonds, and adding to rand strength as well,” she said.

Foreign investors bought a net R72.4 billion of local-currency bonds in 2025, a notable jump from R15.6 billion worth of net purchases in 2024.

Bishop said that for the first few days of 2026 so far, foreigners have purchased R25.8 billion worth of South African bonds, higher than December’s R12.4 billion and compared to any month last year.

She attributed this to a substantial rise in foreign investor appetite for local bonds.

Appetite for South African bonds has also been boosted by interest rate expectations in the United States.

Bishop said financial markets expect two further interest rate cuts in the United States this year, while the South African Reserve Bank is currently expected to cut rates only once this year.

If these expectations materialise, it will widen the interest rate differential between the two nations, supporting the rand.

In addition, she said South Africa is on a strong trajectory for the year ahead, boosted by positive developments in 2025.

This includes South Africa’s removal from the Financial Action Task Force’s greylist, the sharp drop in the inflation target and inflation over the past few years, and S&P Global’s credit rating upgrade.

Bishop said these factors, alongside South Africa’s strong growth prospects over the medium term, all underpin the rand.

In her base case scenario, Bishop expects the rand to average between R16.60 and R16.85 against the US dollar in 2026, as South Africa’s economic growth is modest but is expected to lift towards 3.0% over the next five years.

This would be based on sufficient domestic policy support measures, but growth would still be limited by structural constraints, including infrastructure such as freight transport.

In this scenario, global financial market risk sentiment is neutral to positive, while South Africa is in the BB credit rating category bracket as fiscal consolidation occurs.