Expect a shift for the rand in 2024 – but with a catch

 ·24 Jan 2024

The South African rand is expected to end 2024 in a much better place compared to the dollar than where it started – but the sailing is not likely to be smooth.

Experts at Bank of America (BofA) said that the rand will likely benefit from the market’s realisation that the dollar is overvalued.

The expected decline in the US dollar should see improved capital flows to emerging markets – benefitting the rand, they said.

According to the latest fund manager survey from BofA, the rand is expected to end the year at R17.73/$.

The rand is currently at R18.83 and hit R19.19 earlier this week. Given the volatility of the rand, the experts noted that any gains would come off a low (weak) base.

However, this improvement comes with a catch – any shifts are likely to be ‘stop-start’ and only noticeable in the second half of the year due to anxieties over the South African national and provincial elections.

Echoing these sentiments, economists at Alex Forbes said that 2024 for the rand looks set to be a “year of two halves”.

“The first half will likely be dominated by election campaigning ahead of the May-August national elections; the second half will be dominated by global developments as risk sentiment towards emerging markets is expected to turn positive,” Alex Forbes said.

The 2024 elections are set to be hotly contested, with the ANC widely expected to lose its majority on a national level.

However, BofA and Alex Forbes both said that they expect the status quo to remain in terms of economic policy, as the current ruling party will enter into a coalition with a smaller party.

Not just South Africa’s election

Although there is certainty over the South African national election, there are still question marks over what will happen during the US election, with pros and cons for the rand.

Currently, the US 2024 election looks set to be a repeat of the 2020 election – Donald Trump vs Joe Biden.

Should Trump be re-elected to office, there is a huge potential that he will reimplement tax cuts that he introduced during his first stint in the Oval Office.

BofA said that this would boost capital flows to the US, weakening the rand.

However, Trump has also widely called for the cutting of interest rates. With the current US Federal Reserve Chair Jerome Powell’s term ending in 2026, there is also a possibility that the expected Republican leader will appoint a new dovish and/or non-independent chair.

Should this happen, the dollar will weaken, with investors looking to other markets that offer higher returns, including South Africa.

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