Experts predict a strong year for the rand in 2023
Despite a volatile start to the year, the South African rand is expected to strengthen in 2023.
According to Sebastian Steyn, a forex expert at Sable International, in 2022, South Africa – like most other countries – heavily felt the effects of inflation as the energy crisis hit both consumers and industry.
The negative impact of load shedding was also significant in 2022. However, South Africa’s economy showed remarkable resilience, with GDP growth still expected.
South Africa also increased interest rates extensively to keep inflationary pressures contained while ensuring the rand remained relatively stable.
President Cyril Rampahosa was also embroiled in the Phala Phala scandal and faced a possible impeachment which threatened the status quo.
Thus in 2022, the rand dropped by 4.62% against the US dollar.
However, it is crucial to remember that the dollar had an incredibly strong 2022 and made gains against most currencies – it grew by over 12.20% against the British pound.
The rand strengthened 0.42% against the Australian Dollar and 1.30% against the Euro. The rand also saw substantial growth against the pound – strengthening by 6.94%.
The South African currency is set to grow even more in 2023 as global market participants try to find new opportunities outside the developed world.
In addition, due to the US dollar surging in 2022, the rand ended up being undervalued – Sable International now predicts some pullback.
However, risks remain. Most notably, investors will be keeping an eye on Eskom to see if the embattled state utility can increase generation capacity. and reduce load shedding. Meanwhile, focus will also be directed at whether a re-elected Rampahosa will have the willpower to oust corrupt and incompetent members of the ANC.
Analysis by Investec shows that the rand is likely to average between R16.20 and R16.90 versus the dollar, with the potential to reach R14.00 in extremely good – yet unlikely – market conditions.
The downside risks could put the rand closer to R19.70.
Global expectations
The US saw an exceptional 2022. However, the world’s wealthiest nation is still expected to go into recession in 2023.
Moreover, the country’s labour market is cooling, with multiple tech companies announcing widespread layoffs, which could kickstart a significant downward trend in employment.
The US dollar is thus expected to weaken in 2023, according to Sable.
The Euro will also likely be tested in 2023, with marked expecting the European Central Bank expected to raise interest rates further in 2023.
Last year was challenging for the eurozone due to the energy crisis caused by Russia’s invasion of Ukraine and inflationary pressures, which caused the ECB to raise interest rates for the first time since the global financial crisis.
The Australian dollar remains in ambiguous territory and is highly dependent on what happens regarding China’s reopening after its zero-covid policy. Australia also has to deal with strained relationships with many neighbouring countries.
The pound also faces a challenging year after an incredibly disappointing 2022 – with inflation rising to a three-decade high.
Inflationary pressures are expected to ease in 2023, but high energy prices and consumer unrest are damaging the nation.
The Bank of England also expects a deep and extended recession which dampened investor sentiment.
South Africa’s 2023 outlook is thus slightly more optimistic than these developed markets.
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