Rand breaks through R17 to the dollar
The rand has broken past a key resistance level against the US dollar to trade below the R17.00/$ mark – its best level since early 2023.
Following an optimistic and credible medium-term budget delivered on Wednesday (12 November), markets responded with confidence in South Africa’s financial framework.
By 11h45 on Thursday, the rand had dipped below R17.00 to the dollar, hitting R16.99/$. The rand last traded under R17.00/$ in January 2023, and was last sustainably under the level in 2022.
According to analysts, the rand’s rally is primarily being propelled by investor optimism over the budget review but also by a weaker US dollar on global markets.
Much of the rand’s movements over the past year have been at the whims of global markets, but local factors have had their part to play,
Financial markets responded positively to Finance Minister Enoch Godongwana’s announcement of a lower inflation target on Wednesday, as well as his commitment to stabilise public debt in the mid-year budget review.
Shaun Murison, a senior analyst at Rand Swiss, said speculation that ratings agency S&P Global will upgrade South Africa’s sovereign rating at a scheduled review on Friday was also fuelling the rand’s advance.
“If the momentum continues, perhaps we could see a move towards the R16.80/$ mark shortly,” said Murison.
According to Investec chief economist Annabel Bishop, the momentum built around the Medium–Term Budget is “one more” item that is putting South Africa on the path towards a credit rating upgrade.
The country is currently deep in junk status, or sub-investment grade, with a BB- rating (S&P and Fitch).
However, there is marked optimism that the S&P rating review scheduled for Friday will yield an upgrade.
“S&P noted at its last review that it could raise the ratings if an improving track record of effective reforms resulted in the strengthening of economic growth, and reduced government debt and contingent liabilities, with growth quickening,” Bishop noted.
For 2025-2028 S&P expects economic growth to average 1.5% y/y, while Investec forecasts 1.7% y/y for the period, after 0.5% y/y in 2024, with a quickening in growth forecast on the reduction, then elimination, of the domestic freight crisis.
South Africa received a positive outlook in November 2024 from S&P.
“Credit rating agencies typically don’t keep positive or negative outlooks indefinitely, usually not more than 18 months, without changing the rating or returning the outlook to neutral,” Bishop noted.
At the time, S&P indicated that its current positive outlook reflects the potential for stronger growth than it currently expects, “alongside government debt consolidation, if the coalition government can accelerate economic and fiscal reforms while addressing infrastructure pressures.”
“With projected debt levels lower than before, and growth likely to ramp up towards 2.0% y/y in the medium-term as the domestic freight crisis shows clear evidence of lessening, a number of factors are aligning for a credit ratings upgrade,” Bishop said.
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