2023 South African rand forecast

Goolam Ballim, the chief economist at Standard Bank, expects the rand to strengthen to an average of around R16.40 to the US Dollar through 2023.

Ballim shared this forecast as part of a discussion about the South African and global economic trends to watch this year.

The rand is headed for a fourth weekly loss versus the dollar, the longest streak since an emerging-market-wide selloff in October.

This time, the underperformance is specific to South Africa. The rand is already down 4.1% this year, while most of its peers are firmer, with Chile’s peso racking gains of over 6%.

Daria Parkhomenko, an FX strategist at RBC Capital Markets, said the rand had been one of the worst performers in emerging markets.

“We think that a key driver of this has been the rand carrying a risk premium for the worsening power situation,” Parkhomenko said.

Parkhomenko also said market confidence was low because of President Cyril Ramaphosa’s slow response to the ongoing energy crisis.

Despite the local and global headwinds, the rand can significantly strengthen in a favourable economic climate.

Ballim said many people in the financial market view South African assets as cheap, which can result in the currency appreciating. “The rand is undervalued by a variety of calculations,” he said.

A Dollar weakening is also possible should the Federal Reserve stop rate hikes, but it will depend on the US jobs market, which continues to strengthen.

“The idea that interest rates in the United States can stay elevated for longer had played in the Dollar’s favour,” he said. “Our view is that the dollar will weaken in 2023. Not seismically, but it will weaken.”

As a result, Ballim said they would not be surprised to see the rand strengthen as an annual average through the R17 rand level. “R16.40 would be a plausible average through this year.”

Rand forecast

Ballim provided a rand forecast, which ranges between R14.00 and R18.70, depending on factors influencing the currency, including the budget deficit.