Rand on the brink

The rand has lost substantial ground against the US dollar over the past week, as local tensions and global fears have caused the local currency to plummet.

Despite some volatility in the year to date, the rand has had a strong performance, holding its own against the US dollar as hopes for South Africa’s economic reform remained high.

However, over the past week, the local currency has been dealt several blows as uncertainty rose both locally and globally.

Investec chief economist Annabel Bishop outlined the most recent blows to the rand that have seen the US dollar index track back to levels seen before the United States election in 2024.

On Friday, 4 April 2025, the rand weakened to R19.12/USD, R24.92/GBP, and R21.12/EUR, the first time it had weakened past R19 per greenback since January.

A week ago, the rand was at R18.12/USD, R23.47/GBP and R19.53/EUR. 

This weakening over the past week was mainly in response to plummeting investor sentiment as markets expected South Africa’s market-friendly Government of National Unity (GNU) to collapse.

Bishop explained that the rand has lost substantial ground on the expected exit of South Africa’s second-largest political party, the DA, from the GNU.

This came after the DA voted against the ANC’s proposed Budget, which included value-added tax (VAT) increases and increased state spending.

“While the DA sought fiscal rectitude from the expenditure side, the ANC looked at higher revenue to avoid borrowing, and so credit rating, pressures, in line with the IMF,” Bishop explained.

“The inability to meet halfway, or near there, saw the DA vote against the revised budget, which only proposed very mild VAT changes – 0.5% over two years – in comparison to the 2% hike originally mooted, setting investor sentiment back.”

Bishop ascribed the rand’s weakness largely to this back-and-forth, which led to a substantial drop in market confidence over worries about who would now enter the GNU, with concerns that the ANC may bring in the EFF or MK parties.

She said the lifespan of the GNU to date has been vastly insufficient to make the turnaround South Africa needs to grow its eocnomy sustainably.

She used Transnet as an example. The utility will take five to ten years to meet the country’s economy’s freight needs, and, therefore, economic growth will remain hampered until then.

Global concerns

Bishop added that the collapse in commodity prices has also afflicted the rand, largely due to the broad-based but unequal tariff increases from the US.

This follows United States President Donald Trump’s so-called ‘Liberation Day’, when he announced wide-ranging tariffs on the world economy, including South Africa.

Trump’s tariffs were more wide-ranging than initially expected and more severe in specific cases, with South Africa being hit with 30% tariffs on local goods exported to the US. 

Late on Wednesday, 2 April 2025, Trump announced a global 10% tariff on all imports and higher rates for the ‘worst offenders’, including South Africa.

Trump said this is all part of his plan to balance trade and put America first, claiming that countries were exploiting trade with the United States.

Bishop explained that this announcement has negatively affected expectations on global and US growth and, therefore, global demand for basic materials.

As a commodity currency, this dealt a double blow to the rand.

She explained that South Africa will see tariff lifts on some metals and minerals but avoid them on others.

However, the country faces heavy US protectionism on vehicle, agricultural, and other exports and the loss of its free trade benefits with the United States under AGOA. 

Prior to Trump’s tariff announcements, markets were volatile as uncertainty was high on how wide-ranging and severe the tariffs would be.

However, Bishop explained that the announcement of the tariff hikes did not erase this uncertainty from the financial markets.

This is because the United States can lift or lower the tariffs further at will, causing further disruptions.

In addition, one of South Africa’s other largest trading partners, China, announced retaliatory 34% tariffs on the United States on Friday, 4 April.

Uncertainty prevails

TreasuryONE currency strategist Andre Cilliers explained that China’s retaliation escalated the trade war and triggered a massive global sell-off in markets.

He said fears of a recession in the United States have risen sharply, but hopes of US rate cuts were dashed when Fed Chair Jerome Powell stated that tariffs were likely to reignite inflation in the world’s largest economy.

Cilliers said global equity markets were in freefall on Monday morning, with the Nikkei down 6.7%, the Shanghai down 6.5%, and the Hang Seng 10.77% weaker.

In addition, US futures are pointing to another bad day for Wall Street with S&P down 3.38%, the Dow down 2.65%, and the Nasdaq down 4.25%.

Bishop explained that prior forecasts on global and domestic economic growth are now under threat, which is negative for commodity prices and commodity currencies like the rand.

The Minerals Council of South Africa has already noted its concern about the lower demand for South Africa’s minerals that could result from the United States’ sweeping tariffs on imports from foreign countries.

“Despite the exclusions, we remain concerned about the adverse impact on business and consumer sentiment and the resultant feedthrough to business investment, consumer spending and ultimately global real GDP growth,” the council said. 

“Even though PGMs are excluded from the latest round of tariff increases, vehicle prices in the US will increase because of the 25% tariff the Trump administration has imposed on all vehicle imports, which will slow demand for automobiles.”

“Platinum, palladium and rhodium are used to make autocatalysts for vehicle exhausts to scrub out pollutants.” 

Therefore, if car and truck sales slow, demand for PGMs will reduce and result in volatile near-term prices.

Bishop said financial market volatility is expected to persist, and market bets have lifted on United States interest rate cuts this year.

However, this has failed to benefit the rand, as market fears about changes in South Africa’s government are very high.