South African rand goes from zero to hero

Over the past month, South Africa’s rand has strengthened significantly – and not just because of a weaker United States dollar.

Instead, the local currency has benefited more from improved sentiment towards South Africa, with the rand’s fortunes expected to improve even further as interest rate hikes come into play.

This comes after the rand lost much of its momentum coming into the year when the Iran war broke out at the end of February 2026.

Prior to the conflict, South Africa’s rand was on a roll, benefiting from the country’s improved financial health, an upgraded credit rating, and various economic reforms taking shape.

Thus, the rand entered the new year strong at R16.55 to the United States dollar, a far cry from R18.82/USD at the start of 2025.

The local currency continued to strengthen as the year progressed, even briefly dipping below the R16/USD threshold to reach R15.72/USD at the end of January 2026.

The rand hovered around that level throughout February, periodically dipping below R16/USD throughout the month.

The currency was standing at a strong R15.91 against the greenback at the end of February when the US and Israel launched their war against Iran.

The outbreak of the war immediately sent the rand back above R16/USD, as heightened uncertainty prompted investors to take a risk-off approach and pile into safe-haven assets like the US dollar.

As the war raged on, the rand continued to weaken, crossing the R17/USD level near the end of March and hovering around that level for the rest of the month.

However, some strength returned in April, with the rand consistently staying below R17/USD throughout April and May.

By the end of May, the rand had even fallen below the R16/USD mark, dipping as low as R15.19/USD on 29 May. 

While the local currency has since weakened above that level again, the rand is now 12.7% stronger year-on-year against the US dollar to date.

It is also 4.3% stronger year-on-year against the euro and 7.6% stronger against the British pound.

The graph below shows the performance of the rand and other emerging-market currencies amid the Iran war.

Greenback versus green shoots

Investec chief economist Annabel Bishop explained that over the past two weeks, the rand has benefited from renewed peace talks over the Iran war and S&P Global’s affirmation of a positive outlook for the country’s credit rating.

These factors have led to risk aversion in global financial markets receding, giving the rand and other emerging-market currencies a much-needed boost.

S&P’s positive outlook for South Africa’s credit rating is based on the country’s improving fiscal trajectory, alongside an uptick in its real GDP growth.

The agency also projected further improvements in South Africa’s fiscal metrics and government debt stabilisation, adding to its rosy outlook.

Typically, affirmation of a positive outlook is followed by a rating upgrade within 12 to 18 months.

“As S&P notes, a credit rating upgrade for South Africa is not certain, but it is seen as quite possible,” Bishop said.

“This has positively impacted financial market sentiment towards South Africa as well, adding to some of the domestic currency’s strength.”

Notably, while US dollar weakness has played a role in the rand’s recent strength, Bishop pointed out that the greenback only lost 0.1% last week.

This means the local currency strengthened largely on its own merit, driven by improved sentiment towards South Africa, rather than solely by US dollar weakness, as has been the case in the past.

According to Bishop, the rand’s fortunes are also only expected to improve as the Reserve Bank enters a hiking cycle.

South Africa is expected to hike its interest rates again in July, which would mark the second increase for 2026, while the United States is only expected to see one hike this year.

“Consequently, South Africa is expected to see its interest rate differential widen by 50 basis points over the year versus US interest rates,” Bishop said.

“This has underpinned rand strength, and could see the rand strengthen somewhat further.”

The graph below shows the performance of the rand against the US dollar from January 2025 to June 2026.