Good news about the rand

The current strength of South Africa’s currency is not accidental but grounded in fundamentals, as the country is being rewarded for its fiscal prudence and macroeconomic stability.

Citadel Global director Bianca Botes recently explained that several forces are behind the rand’s recent strength.

To date in 2025, the rand has experienced significant swings, as global markets have faced heightened levels of uncertainty.

This uncertainty was primarily the result of the United States’ indecisive tariff policies, which have seen significant tariff implementations, pullbacks, and pauses.

A big shock came for the rand on 2 April 2025, when US President Donald Trump announced wide-ranging tariffs on several countries.

The days following this announcement saw the rand reach its weakest level of the year, with fears that it would breach the R20 against the US dollar mark. 

However, following the announcement that these tariffs would be paused, the rand has consistently strengthened. On 5 June, the local currency reached R17.70 against the US dollar, its lowest level in months.

Many experts have attributed this strength to external factors, with some specifically pointing to the weakness of the dollar, rather than the strength of the rand, in particular.

Unlike the rand, the greenback has not experienced a strong 2025, as policy uncertainty, weaker growth expectations, and projected interest rate cuts have weighed on the dollar.

The dollar’s weakness has had a significant strengthening impact on the rand’s value, and many experts expect this trend to continue.

However, it is important to note that the US dollar’s weakness is not the only factor boosting the rand’s value.

Botes explained that, over the past week, there has been a convergence of meaningful developments, all of which have supported emerging markets and strengthened the rand.

These developments include strong United States job numbers, central bank rate adjustments and sustained global appetite for risk.

“As much as the world gets distracted by high-profile side shows, the markets remain laser-focused on fundamentals,” she said.

The rand’s strength against the US dollar over the past six months can be seen in the graph below.

Factors boosting the rand

Botes said South Africa’s 10-year bond yield recently dipped below 10% for the first time since 2022, signalling growing investor confidence in local fiscal discipline. 

This, combined with an International Monetary Fund report that shows $19.2 billion (R341.45 billion) in net inflows into emerging markets in May, has bolstered the rand’s performance. 

The local currency gained 1.8% against the dollar over the past week and appreciated against the euro and pound.

“Much of the rand’s strength is due to a combination of improved domestic sentiment and external tailwinds,” Botes explained. 

“The South African Reserve Bank’s strong stance on inflation, fiscal optimism following budget clarity, and inflows from foreign investors have all contributed to a more supportive environment for the currency.”

She said charts tracking USD/ZAR, EUR/ZAR, and GBP/ZAR show sustained downward movement, supported by narrowing Bollinger Bands and Relative Strength Index (RSI) signals pointing to possible consolidation. 

In contrast, the US Dollar Index has trended lower since March, breaking below 99, reflecting shifting Federal Reserve interest rate expectations and easing inflation fears in the United States. 

“While the Fed is now expected to delay its rate cut to September, equity markets remain resilient,” Botes said. 

“The S&P 500 is up 1.5% over the week, while the VIX – the market’s fear gauge – dropped 9.25%, reinforcing a ‘risk-on’ sentiment.” 

She said this is a classic environment where emerging market assets like he rand tend to outperform.

In addition, South African equities have participated in the rally, with the JSE All Share Index outpacing some of its global peers. 

Botes added that the European Central Bank’s rate cut to 2%, its lowest since 2022, further reflects the global tilt toward easing, supporting capital flows into higher-yielding emerging markets.

“Behind all the market noise, there’s a strong signal: macro data matters, policy clarity matters, and investor confidence matters,” she said. 

“The rand’s recent performance is not accidental – it’s grounded in fundamentals.”

However, she cautioned that markets will remain sensitive to any new surprises as the United States and China’s trade talks resume in London this week, and with key US Consumer Price Index (CPI) and jobless claims data due. 

“Volatility is always one headline away, but for now, we’re in a moment where emerging markets like South Africa are being rewarded for fiscal prudence and macro stability,” she said.