Good news for the rand
The rand’s show of resilience this year has not been a fluke, with the unit not only gaining against the dollar but also against other major currencies as well.
The rand has been trading in a relatively stable range over the past few weeks, close to its quarterly average of R17.30 against the dollar.
The wider narrative of the rand’s stronger showing this year has been that it is only trading stronger due to the weaker dollar.
However, data shows that the rand’s strength is more broad-based than just when measured against the dollar.
According to Investec chief economist Annabel Bishop, the US dollar has depreciated by 8.9% overall this year. The rand has strengthened by 8.5%, which tracks very closely to this decline.
“On a trade-weighted basis, the rand has strengthened by 2.7% since the start of the year, losing 0.4% against the US dollar,” she noted. The rand has also weakened 2.2% against the euro.
However, it has gained about 3.5% against the pound and 0.4% on the renminbi (yuan) as well as other currencies in the index.
This reflects remarkable stability for the currency in what has been a relatively chaotic year for global markets.
Other economists and analysts have also noted that the rand’s relative strength has come as quite a surprise, given periods where the currency appeared to be in free-fall.
As an emerging market and commodities-based currency, Bishop noted that the rand is very vulnerable to financial market movements, particularly changes in financial market risk appetite, and so movements in US interest rate expectations.
But because of this, it also stands to gain when sentiment shifts into more favourable territory.
What lies ahead for the rand
On the interest rate front, markets are expecting a slowdown in the United States’ cutting cycle, with the US government shutdown being a particular stumbling block for data releases that guide projections.
“A slowdown in US interest rate cuts, after the 25bp easings at the September and October FOMC meetings respectively, has calmed the markets, which will await direction from the US data points that are released this month,” Bishop said.
However, the turn on global—and even South African—growth is boosting sentiment, with the International Monetary Fund seeing a stronger outcome than previously expected.
“A more positive economic growth outlook boosts financial market risk sentiment too,” Bishop noted, adding that it feeds a risk-on sentiment, which benefits the rand.
For Investec’s forecasts, the rand is expected to continue averaging around R17.30 to the dollar for the remainder of the fourth quarter, strengthening further to average R17.15 in early 2026.
Over a longer period, the currency is expected to maintain a trajectory to R17.00/$.
In an upside scenario, the currency could break through to around R16.30 in 2026. However, the downside could see it move in the opposite direction, back towards R19.00/$.
The main drivers behind Investec’s upside scenario are faster and higher economic growth over the medium term (up to 5% over the next three years), as well as rating upgrades, lower inflation and increased privatisation.
One of the more notable upside indicators has already become a reality, with South Africa being removed from the FATF’s grey list, which will drive a significant boost in sentiment over time.
However, there are key risks that are also tied to the downside scenario, balancing this out.
These include persistently depressed business confidence, slow reforms, and infrastructure constraints remaining in place.
Issues like the expropriation of private land and rising government debt—and the failure to contain it—are also flagged as impediments to the rand’s continued strength.
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