The rand is on a positive run – here’s where it could be heading in the next few months

Global uncertainty has increased significantly in recent months after Russia’s invasion of Ukraine – higher inflation and rate hikes rocked global markets, but the rand has remained remarkably resilient, says Nedbank.

Although the rand weakened just after Russia invaded Ukraine on 24 February, the local currency quickly bounced back, strengthening to just below R15 to the US dollar, the group said in a note on Monday (21 March).

“The pullback came under global conditions that have triggered significant rand weakness in the past. These include an ascending US dollar and a spike in global risk aversion unleashed by the war, surging oil prices, and fears of stagflation.

“The rand gained even further ground after the US Fed raised interest rates on 16 March, signalling a relatively steep rate-hiking path for the next three years,” it said.

This unprecedented resilience reflects the support flowing from higher gold and metal prices on fears of supply shortages due to sanctions on Russia’s metal exports.

It noted that the rand has also benefitted from a renewed foreign interest in the local equity market.

“Apart from exposure to commodities, South Africa offered deep financial markets, cheap valuations, sound monetary policy, and at least somewhat improved fiscal metrics when compared with other large emerging market economies (EMEs) such as Russia, Turkey, and even Brazil and other Latin American countries.”

Despite this general positivity, Nedbank expects some weakening for the rand in the coming months as its recent resilience is further tested.

“Global risk appetites will probably remain choppy as the war drags on, global inflation rises, and the US raises interest rates further and reduces its balance sheet. Elevated metal prices will offer some counter, but the rand is still expected to depreciate moderately during the remainder of 2022.”

The bank forecasts that the local unit will likely trade slightly weaker towards the R15.36/dollar mark towards the end of 2022.

The below table shows the fully monthly exchange rate forecasts for the coming months by Nedbank’s group economic unit.

At 12h00 on Tuesday (22 March), the rand was trading at the following levels again the major currencies:

  • Dollar/Rand: R14.89
  • Pound/Rand: R19.63
  • Euro/Rand: R16.38

Metals and safe havens 

The rand and other commodity-based currencies benefitted from the surge in metal prices as sanctions on Russia’s commodity exports fuelled fears of supply shortages.

Apart from the sentiment boost brought about by higher gold and other metal prices, the rand was supported by foreign capital inflows. The Institute of International Finance’s (IIF) database on portfolio flows to emerging market economies show that foreigners sold out of most emerging market economies but returned to the local equity market.

“South Africa offered investors looking for some EME exposure the benefit of deep financial markets, cheap market valuations, and relative macroeconomic stability compared to Russia, Ukraine, Turkey, and even Brazil. Expectations of a bounty of interest rate hikes may also have contributed to the rand’s resilience,” Nedbank said.

“The forward rate curve is pricing in hikes of around 200 basis points (bps) in 2022. Finally, it probably also helped that the country’s fiscal metric improved somewhat, GDP returned to growth and the current account remained in surplus albeit a much smaller one.”


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The rand is on a positive run – here’s where it could be heading in the next few months