Forgotten force crushing the rand

Global events have led to significant volatility for the rand, but South Africa’s homegrown problems are behind the rand’s long-term decline.

External events like international trade movements, geopolitics, and global uncertainty will continue to weigh on the rand in the short term.

However, over the longer term, local pressures like South Africa’s low credit rating, insufficient job creation, and slow economic growth will undermine the currency’s value.

This is feedback from Investec chief economist Annabel Bishop, who explained that the rand has been volatile this year mainly due to global events.

The rand is generally one of the world’s most volatile currencies because of this combination of domestic problems and global investor sentiment.

It is one of the most traded emerging market currencies, which results in rapid swings in response to positive or negative developments.

In 2025, factors leading to the rand’s volatility have included uncertainty regarding United States tariffs and their impact on global trade and lower-than-expected global growth.

While leading to volatility, these factors have not necessarily weakened the rand, with the local currency remaining more resilient than expected.

Old Mutual chief economist Johann Els recently explained that the greenback’s weakness is the main driver behind the rand holding its own against the dollar, despite elevated global uncertainty.

In other words, the rand is not necessarily stronger, but rather the US dollar is weaker amid uncertainty and the deterioration of the American government’s financial health.

This can be seen in the fact that while the rand has strengthened against the dollar, it has weakened against other major currencies such as the British pound and euro.

Bishop explained that, on a longer-term basis, the rand’s value is undermined by South Africa’s loss of its credit rating, insufficient job creation due to weak GDP growth, slow market growth, and other factors.

Many economists are in consensus that the rand is trading much weaker than its fair value, which can mainly be attributed to the country’s local problems, rather than international factors.

The rand’s fair value

Els estimates the rand’s fair value to be at R11.54 to the US dollar, significantly below its current level of R17.70 as of 12:00 on 12 August 2025.

This is because the fair value level of the rand does not take into consideration the significant risk premium attached to South African assets. 

With this risk premium attached, the rand’s value should be between R17.80 and R18 to the US dollar. The risk stems largely from policy uncertainty and the government’s deteriorating finances.

South Africa’s lacklustre economic growth over the past 15 years also plays a role. Positively, this means any sustained pick-up in economic activity could see the rand strengthen significantly.

While Els believes that the rand will strengthen in the short term, he does not think it can reach its fair value level without sustained economic growth, improved government finances, and substantial upgrades to the country’s credit rating.

“This cycle is similar to what was seen in 2020 to 2021. During the Covid-19 lockdown, the rand hit R19/USD. It then went from R19/USD in April 2020 to R13.50/USD in June 2021,” Els said. 

“People do not think the rand can trend like that, and it has in the past when the climate was right.”

Els believes the single biggest risk affecting the currency’s value in the short term is sentiment.

“That is why you see it strengthening recently, but its long-term trajectory is determined by economic performance,” he said.

This echoes Bishop’s warning that the rand will be beholden to global events for most of its volatility, “although on a longer term basis undermined by South Africa’s loss of its credit rating, insufficient job creation on weak GDP, and so slow growth in market size, among other factors”.