Where the rand is going for the rest of 2024

The rand is expected to perform well for the remainder of the year, with estimates for the end of the year ranging from R17.80 to R18.30 to the US dollar.

This is feedback from currency expert and director at Citadel Global Bianca Botes, who outlined in a recent note what is behind the rand’s strength, 

“The rand remains one of only five emerging market (EM) currencies out of a total of 23 that has been trading stronger against the dollar in the year to date,” Botes said. 

Citadel’s relatively strong rand-to-dollar exchange rate range forecasts for the end of 2024 depend on certain variables and assumptions. 

However, the firm believes there is room for the rand to gain even more ground if certain things remain in place. 

The main reason behind this strength and the rand’s room to run is the Government of National Unity (GNU) formation. 

Botes said the GNU is seen as more business-friendly than previous governments in South Africa and has resulted in increased optimism about the country’s future. 

Crucially, it has shifted investor sentiment towards South African assets, with foreign investors pumping money into local equities and bonds. 

“The formation of the GNU was seen as positive by market participants and assisted in the unwinding of some risk premia that was priced into the rand.” 

“We have also seen some positive policy come to the fore,” Botes said. It is crucial for the new government to take concrete steps to implement reform to sustain the optimism seen in financial markets. 

Most importantly, it is vital that the South African economy begins to grow at a significantly higher rate than it has for the past decade. 

Since the new government’s formation, bond yields have fallen dramatically, the JSE has gained notable ground, and the rand has appreciated against the dollar – all signalling renewed investor optimism for South Africa, she said. 

Reforms that offer hope include stabilising the energy supply, fiscal reform and discipline, greater government efforts to collaborate with the private sector, and an apparent surge in investment. 

“These developments could mark the beginning of a sustained period of growth for South Africa. If the GNU can maintain cohesion and implement necessary reforms, the country could see a significant improvement in its economic performance over the coming years.” 

“This would not only enhance the standard of living for South Africans but also position the country as a more attractive destination for foreign investment.” 

“The coming months will be crucial in determining whether this positive momentum can be sustained and translated into long-term prosperity for the nation.”

“In the longer term, the rand will, however, take its cues from global events, specifically the dollar performance and announcements by the US Federal Reserve,” Botes said. 

It is important to note that the rand’s relative strength cannot be attributed only to South African factors. 

A major driver of the rand’s performance is the broader risk-on sentiment from investors in anticipation of rate cuts in the US. 

The rand is seen as indicative of global risk sentiment, benefitting immensely when investors are willing to take on more risk for higher returns. 

“From a more holistic perspective, you need a risk on the environment and rising commodity prices for EM currencies – and especially those which are commodity driven such as the rand – to benefit,” Botes said. 

“Risk sentiment has flipflopped throughout the year, and when we see a risk appetite in the global sphere turn positive, the rand typically benefits from the yield-seeking behaviour.” 

Global factors also present a risk to rand strength, with the uncertainty created by the US election likely to translate into rand volatility. 

Furthermore, interest rate cuts in the US and locally are likely to introduce additional volatility. 

FutureForex CEO Harry Scherzer explained how interest rate cuts will influence the value of the rand in the short term and over the longer term. 

For example, he said an interest rate cut could weaken the rand as investor money flows out of government bonds. 

“That’s not specific to the rand either. The US dollar has already weakened off the back of speculation around an interest rate cut,” he said. 

“While that’s benefitted South African consumers, particularly at the petrol pumps, it will be interesting to see what impact rate cuts from both countries have on the exchange rate between their two currencies.”

While interest rate cuts will have an initial negative impact on the rand, as interest rates fall in South Africa and around the world, the economy could also be positively affected. 

For example, if central banks have managed to stabilise inflation while avoiding a global recession – which seems likely – then they may well be more inclined to keep cutting them. 

“If that’s the case, investors will likely turn away from the relative safety of government bonds and towards riskier asset classes in the quest for higher yield,” he said.