Rand goes from zero to hero in a year
Traders are just fine with the rand at its strongest level against the dollar in more than three years, volatility measures show.
The South African currency strengthened by 14% against the US dollar in 2025 and continued to gain this year, buoyed by record-high precious metal prices and improving investor sentiment, following a credit rating upgrade from S&P Global Ratings in November.
That’s pushed the rand to overbought levels, according to the Relative Strength Index, a technical indicator that some traders use to identify potential turning points.
Options pricing, however, suggests the pivot point hasn’t yet been reached.
Expected price swings for the rand-dollar pair over the next six months fell to the lowest level in almost 25 years this month, while the cost of hedging against rand declines over the period is the least since October.
“I think the rand can maintain its strong performance,” said Sergei Strigo, a portfolio manager and co-head of emerging-market debt at Amundi UK Ltd.
“The gold price and terms of trade are supportive. Overall market sentiment is bullish. I do not see the rand weakening if this environment continues.”
In a further sign of investor confidence, the cost of insuring South Africa’s debt against default over the next five years has plummeted to its lowest level since 2012.
The local-currency 10-year bond yield, meanwhile, is at the lowest in a decade, having fallen more than 200 basis points since the beginning of last year.
Bets on Federal Reserve interest-rate cuts this year have weighed on the dollar, giving further impetus to rand gains.
The South African currency has returned 3.8% in the dollar-funded carry trade over the past month, the most out of emerging-market currencies tracked by Bloomberg.
“Carry-trade positioning will provide support heading into the new year,” said Hironori Sannami, a foreign-exchange trader at Mizuho Bank in London.
He prefers the rand over high-carry Latin American peers like the Mexican peso and Brazilian real because of regional risks related to the conflict between the US and Venezuela.
Reality check
While sentiment around the rand is positive—and sticking—the currency’s performance does come with a caveat: it has still lost ground against the dollar on a nominal trade-weighted basis.
The nominal trade-weighted rand index weights the rand exchange rates against the currencies of South Africa’s top twenty trading partner countries, key among which are the euro, US dollar, Chinese yuan, pound, and the yen.
According to Investec Chief Economist Annabel Bishop, the rand’s year-on-year gains against the dollar in 2025 need to be understood in the context of the much weaker dollar.
The US dollar weakened by 3.3% year-over-year (y/y) in 2025, while the rand gained only 2.5% y/y against the greenback for the year.
This means that rand actually lost ground against the dollar, as well as other currencies. It was 1.7% y/y weaker against the euro over 2025, and 0.6% weaker against the pound.
However, despite this wider context, sentiment towards the rand and the South African economy has still improved drastically.
“Global investor sentiment improved significantly by the end of last year, accelerating in general over H2 2025, with expectations of returns improving as markets became increasingly bullish on US Fed rate cuts,” Bishop said.
Expectations for both the global and US economic outlooks have improved, as well as for South Africa.
Meanwhile, US interest rate cut expectations have led to a weakening of the US dollar, which in turn has driven the rand stronger against it.
Two further US interest rate cuts are expected this year, which have helped drive the rand to under R16.40/$, from R19.11/USD.
“The rand is still expected to see further strength against the US dollar this quarter, given USD weakness,” Bishop said.
With Bloomberg
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