Efficient Group director and chief economist Dawie Roodt said the rand should be trading at R15 to R16 to the US dollar – much stronger than where it is currently trading.
South Africa’s rand slumped to a record low against the dollar on the back of worsening diplomatic tensions and economic risks.
On 1 June, the rand dropped to R19.87 per dollar, making it the worst performer this month among emerging markets.
The currency slump followed accusations by the United States that South Africa supplied weapons to Russia which could be used in Ukraine.
South Africa is also set to host Russian President Vladimir Putin at the BRICS summit set to be held in Cape Town in August.
Putin, whom South Africa invited to attend the August gathering, is wanted by the International Criminal Court on charges related to Russia’s war with Ukraine.
As a signatory to the Rome Statute, which established the court, South Africa would be obliged to arrest him if he attended.
This is unlikely, adding further tension between South Africa and the United States and sour trade relations.
The South African Reserve Bank (SARB) warned about sanctions by the United States as a new risk in its new Financial Stability Review (FSR).
The SARB said South Africa’s desire to remain politically neutral might not be perceived as such, potentially resulting in secondary sanctions imposed by the US.
The South African financial system will not function if it cannot make international payments in US dollars.
Other factors causing currency weakness included consistent load-shedding and South Africa’s greylisting by the Financial Action Task Force (FATF).
After getting close to R20/USD, the rand strengthened to close to R18/USD after tensions with the United States started to ease.
The stronger currency followed reports that South Africa was considering moving the BRICS summit to China to avoid the Putin debacle.
President Cyril Ramaphosa and other African leaders also led a peace mission to Ukraine and Russia to reiterate their neutral stance.
Roodt said the rand could easily strengthen to below R17/USD should there be good news and stability in South Africa.