How much the rand should be worth

Efficient Group chief economist Dawie Roodt revealed that the rand’s fair value is between R14.91 and R17.44 to the US Dollar, much stronger than where it is trading now.

He shared his views on the rand during a presentation about the 2025 Budget delivered by Finance Minister Enoch Godongwana on Wednesday, 12 March.

The rand has been volatile over the last year, ranging from R19.23 against the UD Dollar in April 2024 to R17.10 in September 2024.

The International Monetary Fund (IMF) warned that the rand’s volatility limits the country’s growth by preventing local firms from engaging in long-term investments.

The South African currency’s unpredictability also scares away many risk-averse foreign investors who prefer certainty over potentially high returns.

The challenge of the rand is that it is traded in large volumes globally and is seen as a proxy for emerging market investment.

It makes the South African currency highly exposed to external shocks and global events and, thus, highly volatile.

Roodt said the rand traditionally traded at weaker levels than it should due to structural problems in the South African economy.

These problems include poor fiscal discipline from the government and slow economic growth due to business unfriendly policies.

Nedbank chief economist Nicky Weimar said the rand has largely held its own in 2025 due to the reduced risk premium since the Government of National Unity (GNU) was formed.

Weimar explained that investors are currently giving South Africa the benefit of the doubt, which bolsters the rand.

She expects the Reserve Bank to watch the rand closely amid increased global uncertainty and the intensification of the US-China trade war.

These promise to boost the dollar in the short term and weaken emerging market currencies like the rand.

Furthermore, US President Trump’s attacks on South Africa are expected to gradually weaken the local currency as foreign investors look to ‘Trump-proof’ their investments.

Despite this, the rand has held its own since Trump ascended to the White House and has not spiked to over R20 to the US dollar as some expected.

Dawie Roodt’s fair value of the rand

Roodt calculated the rand’s fair value to be between R14.91 and R17.44 to the US Dollar using Purchasing Power Parity (PPP) and the currency’s historical undervaluation.

To calculate the fair value, he used a basket of goods to calculate the purchasing power of the rand, similar to how The Economist’s Big Mac Index works.

He then adds the historical average undervaluation of the rand versus the dollar to its PPP to get its fair value.

A currency never trades exactly at its fair value and, in the case of the rand, always trades weaker than its fair value.

This means that one has to factor in the undervaluation of the currency to get an accurate, fair value. On average, the rand trades around 50% weaker than its fair value.

The rand’s value follows a pattern where there is usually a momentary crisis, which results in a sharp decline in the rand’s value, followed by a gradual recovery to fair value.

Thus, the rand should incrementally appreciate against the dollar over the next few years as it is currently undervalued.

Roodt said that the rand can be considered strong when it trades between R12.21 and R13.85 to the greenback.

The far value is between R14.91 and R17.44 to the US Dollar, and it can be considered weak when it trades between R18.90 and R23.12.

The chart below, courtesy of Efficient Group, shows Roodt’s rand fairness barometer based on his model.