Five things crushing the rand

South Africa’s currency is under immense pressure due to the government’s historic financial mismanagement, increased volatility, poor local economic performance, and a potential end to interest rate cuts. 

This is feedback from Bianca Botes, a foreign exchange expert and director at Citadel Global, who outlined the top five pressures on the local currency in 2025 in a recent research note. 

The rand has been holding its own since it began to weaken against the dollar after Donald Trump won the US election on 5 November 2024.

Prior to that, the currency went through a period of unusual strength against the greenback as optimism surrounding the Government of National Unity (GNU) and a reduction in load-shedding boosted local financial assets. 

Trump’s ascension to the White House has flipped the script, with the dollar strengthening and emerging market currencies, such as the rand, weakening. 

The US President’s policies are broadly expected to boost the dollar and the American economy in the short term. However, the picture is less clear over the longer term. 

Aside from Trump’s pro-dollar policies, he has also introduced volatility and uncertainty into global financial markets. 

Investors tend to flock to dollar and US-based assets during these periods as they are viewed as safe havens compared to riskier investments. 

Public disagreements between members of the GNU have not helped the rand, with investors seeing these as signs that the coalition may not last. 

These disagreements also add further uncertainty to local financial markets, undermining some of the confidence seen in the second half of 2024. 

The stability and survival of the GNU are central to the ongoing positivity surrounding South Africa and the ongoing optimism in local financial markets. 

The coalition is potentially stronger than it appears from the outside since the parties need each other and find the alternative populist scenarios unappealing, though for differing reasons. 

However, they must also maintain individual identities and keep their internal audiences onside.

Botes said the South African rand could be in for a bumpy ride as economic and political dynamics shift in 2025, but it might not be downhill. 

Looking at the major market forces at play, Botes shared five factors that will be decisive for the rand’s performance in the coming year.

South Africa’s fiscal discipline

All eyes were on the Budget, which was postponed to 12 March. This delay did not help the National Treasury’s efforts to show investors that South Africa is on a sustainable fiscal path, Botes said. 

“While the date has changed, the focal points will not change, and we will still be looking towards the government to present a financial plan or budget that supports growth,” she said. 

The government also needs to lay out clear plans for implementing much-needed structural reforms to solve problems within the local economy.

“As always, we will also look at the government wage bill, state-owned entity (SOE) spending, and fiscal debt.” 

Botes said the outcome of South Africa’s macroeconomic reforms in the coming year will be a major factor influencing the strength of the rand.

Volatility in commodity markets

Commodity-linked emerging market currencies such as the Brazilian real and South African rand will remain volatile and susceptible to weakness amid fluctuating demand for oil and metals.

However, a volatile commodity market could support the rand, depending on which commodity prices rise and fall. 

Growing demand for commodities such as gold and coal and potentially diversifying trade partnerships could bolster South Africa’s export earnings.

Over the medium to long term, the rand takes its cues from commodity markets and benefits from favourable terms of trade.

Geopolitical shocks and increased trade tensions

Trade tensions between South Africa and the US, under the leadership of President Donald Trump, will undoubtedly continue to impact the rand.

The suspension of aid from the US to SA, coupled with the risk of an early suspension or non-renewal of the African Growth and Opportunity Act (AGOA), could increase volatility and weaken the rand. 

An antagonistic approach by the Trump administration towards the BRICS trade bloc could compound this effect throughout 2025.

The success of South Africa’s G20 presidency in 2025 and the future relevance of the G20 also hang in the balance, as the US refuses to participate. 

In addition, several countries will likely enter into trade talks with new potential trading partners in 2025, which could cause current supply chains to diverge even further.

Geopolitical shocks or aggressive US trade policies could also trigger a retaliatory global trade war and renewed investor demand for safe havens. 

Many of them will likely move most of their money away from perceived ‘riskier’ emerging markets to ‘safer’ developed markets in this scenario.

Fluctuating and unpredictable US import tariffs will continue to threaten global supply chains and have the greatest impacts on export-dependent economies such as South Africa. 

Interest rates

While the US Federal Reserve left interest rates unchanged in February, this delay tactic and Trump-era tariffs on fuel imports will likely drive a short-term rally of the US dollar. 

Moderating US growth, combined with narrowing interest rate gaps and overvaluation pressures, will likely weaken the dollar towards the end of 2025. 

The US Fed is still expected to cut once in the second half of this year, versus more aggressive cuts from the European Union and the United Kingdom. These countries are under pressure to stimulate growth, causing policy divergence.

Meanwhile, the Reserve Bank cut the repo rate by 25 basis points for a third consecutive time at the end of January, bringing the benchmark rate to 7.5%.

The Reserve Bank is expected to maintain its conservative approach and closely monitor inflation to assist in its decision-making process. 

Emerging market tailwinds and headwinds

When considering headwinds, the strength of the dollar will pressure emerging market currencies, specifically Asian currencies such as the Chinese yuan and Indian rupee. It will also put the rand under pressure. 

Higher US interest rates typically keep the dollar stronger for longer, which reduces the appeal of ‘riskier’ assets such as emerging market assets. 

However, looking at the possibility of tailwinds, the Chinese yuan could stabilise in 2025 thanks to interventions by the People’s Bank of China (PBOC) and regional trade pivots. 

Stimulus measures aimed at offsetting the Chinese property slump, in particular, may support EM growth and Chinese yuan stability, which will benefit its trading partners. 

The rand is an important emerging market currency, and given South Africa’s strong trade relations with China, the better the Chinese economy does, the more they consume, and commodity-driven currencies such as the rand will perform.