Rand breaks through R16 to the dollar
The South African rand briefly strengthened below R16 to the dollar on Monday (26 January), with the local unit benefiting from fears over the US economy and positive local developments.
The South African rand has been on a winning streak over the last year against the US dollar, strengthening from one of its weakest points in 2025, well over R19/$.
The development is primarily due to the US dollar weakening over the last year following the return of US President Donald Trump to the White House.
The dollar has fallen amid concerns about the US’s fiscal deficit, a forecast cut in US interest rates in 2026, and heightened uncertainty from Trump’s tariffs and the US’s tactics in Venezuela and Greenland.
Although a local currency’s weakness is often a cause for concern, the Trump administration has favoured a weaker dollar to boost the US’s competitiveness.
While US dollar weakness has been the main driver of the rand’s strengthening, several positive developments in South Africa have also contributed to the local currency’s rally.
This includes its first credit rating upgrade in two decades by S&P Global, its removal from the Financial Action Task Force (FATF) grey list and an upward trajectory in economic growth.
The South African Reserve Bank is also still expected to cut interest rates in 2026, with markets estimating 50 basis points of cuts.
While the rand broke through the R16/$ barrier, it was a brief event. Soon after breaking through the R16 to the dollar mark, the currency quickly reverted above the resistance band.
The rand is still sitting close to the resistance level at around R16.03. Markets would need to gain stronger momentum for the unit to sit below this level sustainably—something which is in doubt.
Specifically, analysts have warned that the rand’s strengthening over the last year is unlikely to continue at its current rate.
Bianca Botes, Director at Citadel Global, noted that markets are still being held back by South Africa’s tepid economic growth and a strained outlook for relations with the United States.
Without a trade deal with the world’s biggest economy, and the chances of being kept out of the US African Growth and Opportunity Act (AGOA), risks are high.
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