The rand may stage a comeback versus the dollar in 2024 as central banks around the world begin to cut rates and investors’ risk appetite grows.
This is feedback from forex and currency hedging expert at Kuda Forex PR Nel, who said the rand is likely to be influenced by global economic forces throughout the year.
The rand has consistently lost ground against the dollar over the years, with the currency losing 9% against the greenback last year and 17% over the past two years.
Unusually for the rand, it has had a poor start to the year. Typically, the rand has a good December and January, but that has not been the case so far, with the rand being near all-time highs.
However, Nel said that there is good reason to be positive about the prospects of the currency in 2024.
As interest rates come down globally, Nel expects the rand to benefit as the risk appetite of investors grows and they search for strong yields in emerging markets.
This effect will be especially strong if the Federal Reserve begins cutting interest rates before the Reserve Bank, as this will increase the yield of South African fixed-income assets versus those elsewhere.
Thus, foreign investors should be attracted to local assets, particularly government bonds, which will result in the strengthening of the currency.
“We can see the rand coming back to its fair value, and all the big banks are looking at around R17 to the dollar as the fair value of the currency,” Nel told Classic Business.
This does not mean the rand will end the year at R17 to the dollar but will trend in that direction.
Nel also cautioned that several factors will impact this forecast, particularly the elections in the US and in South Africa.
This has resulted in increased uncertainty and, thus, volatility in the value of the rand, which has a negative impact on businesses in South Africa as it leads to uncertainty around input costs from imports.
The rand is already one of the most volatile currencies in the world, and elections in South Africa will add to that.