The rand did better than you think in 2024 – what 2025 could look like

In a year dominated by the strength of the United States dollar (USD), South Africa’s rand managed to hold its ground with relatively limited losses in 2024.

While currencies like the Brazilian real, Chilean peso, and Indian rupee plunged to record lows, and the Korean won has hit its weakest point since the 2008 financial crisis, the rand’s 3% depreciation in 2024 stands out as comparatively modest.

This was outlined by Izak Odendaal, Chief Investment Strategist at Old Mutual Wealth.

Odendaal told BusinessTech that there were two key factors that allowed the South African rand to perform relatively better compared to other emerging market currencies in 2024.

Firstly, the rand was already quite weak going into 2024, having fallen sharply the prior two years and hitting over R19/USD in January.

“While other emerging markets faced the same headwinds of Fed rate hikes and a strong dollar, South Africa had the unique problem of a worsening electricity crisis,” while the looming election was also a source of uncertainty, said Odendaal.

Secondly, after the election, “the outlook for the local economy improved with the formation of a centrist governing coalition that is committed to economic reforms and fiscal consolidation,” he added,

This contrasts with other emerging market economies, with the example of the Lula administration in Brazil loosening fiscal policy substantially.  

2025 outlook

Odendaal said that 2025 is expected to be another tough year for emerging market currencies.

The Chief Investment Strategist explained that the US economy is still doing well, which means there are likely to be fewer cuts to interest rates, and incoming President Donald Trump’s policies generally support a stronger dollar.

“However, much of this is surely priced in already,” said Odendaal.

If the US economy slows down, interest rate expectations could change, and the dollar might lose strength as it is very strong on a historical basis already.

There is also a lot of uncertainty about the details of Trump’s policies—when they will happen, where, and how they will be implemented.

For South Africa, Odendaal explained that this has two implications.

He explained that firstly, the Reserve Bank is going to be cautious about rate cuts.

“Even though inflation fell through the bottom of the 3% to 6% target range in October and November, we’re unlikely to see accelerated rate cuts,” he said.

Odendaal believes that the sudden rand weakness in December will leave the members of the Monetary Policy Committee (MPC) “feeling vindicated in their approach.”

“There will be further cuts, but the MPC will be patient in delivering them.”

Secondly, Odendaal stressed the need to push ahead with the necessary reforms to grow the economy and stabilise state finances.

“It is a difficult world out there, and we need to do as much as possible to get our own house in order,” said the Old Mutual Chief Investment Strategist.

He explained that a strong dollar usually implies softer commodity prices. If export prices are weak, export volumes become more important for total revenues.

“Export volumes can only grow if we fix the rails and the ports,” he said.

This was echoed by Investec Chief Economist, Annabel Bishop, who said that despite some improvements, “capacity constraints at Transnet overall remain dire,” which is impacting the growth potential of the country

“A greater limitation on competitiveness for South Africa comes from Transnet’s incapacity to fully meet demand, and this has reduced GDP growth by around 3% per annum” said Bishop.

Additionally, the incoming Trump team have ambiguous views on whether a strong or weaker dollar is preferable.

US monetary policy, especially in relation to interest rates and tariffs, will influence currency dynamics in 2025.

Odendaal said that in simple terms, if the Fed cuts rates by less than other major central banks, that supports the dollar.

“The reality is that the Fed does not know any more than the rest of us what Trump’s policies will be, when they will be implemented, and what the eventual impact will be,” he said.

At the US’ Federal Open Market Committee meeting in December, some officials started incorporating assumptions of tariffs and other policies into their forecasts.

Odendaal explained that this led to the outlook for inflation and interest rates shifting higher.

“It is therefore fair to assume that there will be considerable currency volatility this year. The rand unfortunately tends to be more volatile than most,” he said.

“But I do expect it to end the year stronger than where it started,” added the Old Mutual Chief Investment Strategist.

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