The second quarter of 2023 has seen the rand come under severe pressure, which will likely remain the case for the rest of the year.
This is according to Nedbank’s July 2023 Guide to the Economy, which expects the rand to average more than R18 to the US dollar for the rest of 2023.
Nedbank expects the local currency to average R18.34/USD in Q3 2023 and R18.07/USD in Q4.
The rand has been falling since the start of the year and weakened further in the second quarter.
The currency was “severely hurt by the tensions with the US and its potentially grave economic and financial consequences for South Africa’s already struggling economy”.
One of the most significant blows to the rand this year came from allegations that South Africa supplied arms to Russia to aid its Ukraine war, which sparked fears of sanctions. This drove the rand to a record low of R19.81/USD on 25 May.
In Q2 2023, the rand depreciated by 5.6% against the US dollar while weakening by 6.1% and 8.4% against the euro and the British pound, respectively.
Since then, the rand has recovered some lost ground, supported by lower stages of load-shedding at the start of winter, slightly better economic and trade outcomes, and the SARB’s aggressive interest rate hikes.
A softer US dollar also offered some support, as global risk appetites improved slightly amid evidence of receding US inflation and hopes of an end to the Fed’s rate hiking cycle.
“However, the rand came under renewed pressure in early July as global risk sentiment soured again on signs of sticky core inflation and increasingly hawkish rhetoric from the US Fed and other central banks,” Nedbank said.
For the year to date, the rand is down by 13.6%, 16.8%, and 17.1% against the US dollar, the euro, and the British pound.
So far this year, the rand has been one of the worst-performing emerging market currencies, and the outlook remains uncertain.
“We expect the local unit to remain volatile, heavily influenced by patchy global risk sentiment, which is likely to be erratic as the outlook for US interest rates remains uncertain and global growth prospects continue to wane,” it said.
“Local factors are also unfavourable. Concerns about the disruptive impact of load-shedding, the potential consequences of the government’s relationship with Russia and political noise ahead of the 2024 elections will continue to hurt investor sentiment.”
Therefore, the rand will likely remain under pressure for much of the year. However, Nedbank expects some recovery is possible towards the end of the year as global risk sentiment improves once US interest rates have peaked and global growth has turned around.