{"id":823114,"date":"2025-05-07T12:45:06","date_gmt":"2025-05-07T10:45:06","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=823114"},"modified":"2025-05-07T12:45:12","modified_gmt":"2025-05-07T10:45:12","slug":"the-scenario-that-would-push-the-rand-to-its-worst-levels-in-history-against-us-dollar","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/finance\/823114\/the-scenario-that-would-push-the-rand-to-its-worst-levels-in-history-against-us-dollar\/","title":{"rendered":"The scenario that would push the rand to its worst levels in history against US dollar"},"content":{"rendered":"\n

While the South African rand has been on a winning streak recently and the prospects remain relatively positive for 2025, there is still a chance it could fall to R20.50\/USD\u2014the worst level in history.\u00a0<\/p>\n\n\n\n

The South African rand made substantial gains this week, appreciating by 1.7% to trade at R18.28 against the US dollar, as markets anticipate interest rate cuts in the United States.<\/p>\n\n\n\n

According to Investec chief economist Annabel Bishop, this marks a notable improvement from the recent average of around R18.88\/USD.<\/p>\n\n\n\n

She said the rally in the rand has been fuelled mainly by weaker-than-expected US economic data, which showed a mild contraction of -0.3% in the first quarter of 2025.<\/p>\n\n\n\n

Bishop attributed the decline primarily to a sharp 4.8% drop in net exports, as US imports surged ahead of planned tariff hikes in April, timed for what she described as \u201cUS liberation day.\u201d <\/p>\n\n\n\n

She noted that the GDP dip is not necessarily a sign of an impending recession but rather a consequence of stockpiling to avoid higher import costs.<\/p>\n\n\n\n

\u201cThe import jump was largely counteracted by lifts in private inventories, fixed investment, and personal consumption. The data indicates the early disruptive nature of the US trade war.\u201d<\/p>\n\n\n\n

Bishop expects second-quarter data to show more muted tariff-related impacts, but sentiment remains \u201crisk-on,\u201d which supports emerging market currencies like the rand. <\/p>\n\n\n\n

\u201cThe rand is likely to benefit further this month as it likely subsides back towards R18.00\/USD, with the domestic currency currently on track to average R18.60\/USD this quarter,\u201d she added.<\/p>\n\n\n\n

While recession risks in the US have receded\u2014from 60% to 40%\u2014Bishop warned that a slowdown in the world\u2019s largest economy could still trigger global knock-on effects, particularly for fiscally fragile countries like South Africa.<\/p>\n\n\n\n

Locally, political tensions are weighing on sentiment. Bishop flagged calls within the ANC to oust the DA from the Government of National Unity (GNU) as a key concern. <\/p>\n\n\n\n

This follows a bruising clash over the national budget and contentious VAT hikes, which the DA opposed.<\/p>\n\n\n\n

Although a revised budget excluding the VAT hike is expected on 21 May, investor confidence has been rattled.<\/p>\n\n\n\n

\u201cMarkets are now waiting for the government to deliver on its promised reforms,\u201d Bishop said, adding that political instability is keeping the rand from returning to its sub-R18\/USD levels seen in late 2024.<\/p>\n\n\n\n

The scenario where the rand hits the worst level in history<\/h2>\n\n\n\n
\"\"<\/a><\/figure>\n\n\n\n

While Investec’s base case scenario (50% probablity) is that the rand will continue to strengthen toward R18.00 to the dollar in 2025, the next most likely scenario sees the unit going the other way.<\/p>\n\n\n\n

In the bank’s \u201cLite down\u201d economic scenario, there is a 32% chance that the could rand weaken to historic lows, reaching R20.50\/USD by the end of 2025.<\/p>\n\n\n\n

This would be the rand’s weakest performance against the US dollar after recently reaching this milestone on 9 April, where it hit R19.93\/USD.\u00a0<\/p>\n\n\n\n

In this scenario, international risk sentiment remains neutral, but South Africa’s debt situation deteriorates as the government fails to see its projections stabilise.<\/p>\n\n\n\n

This would result in the country falling into single B (local and foreign currency) credit ratings from all three agencies, including Moody\u2019s, Fitch Ratings, and S&P Global.\u00a0<\/p>\n\n\n\n

This scenario would also see a recession in the country, with business confidence depressed. Load shedding and infrastructure constraints worsen, leading to weak investment and civil unrest.\u00a0<\/p>\n\n\n\n

It also includes other negative factors, such as high inflation due to unfavourable weather conditions, rand weakness, and transtions to cleaner energy stalling.<\/p>\n\n\n\n

The forecast also sees limited expropriation of private sector property without compensation\u2014something which is a highly contentious issue in the country at present.<\/p>\n\n\n\n

Under these circumstances, the rand would hit its worst-ever levels (again) in Q3, continuing to deteriorate towards the end of the year.<\/p>\n\n\n\n

The more likely scenario for South Africa<\/h2>\n\n\n\n
\"\"<\/a>
Investec Chief Economist, Annabel Bishop<\/figcaption><\/figure>\n\n\n\n

Fortunately, this is not the expected scenario for South Africa.<\/p>\n\n\n\n

In the more likely base case scenario (50%), economic growth is modest but lifts towards 3% year-on-year over five years with sufficient domestic policy support measures.<\/p>\n\n\n\n

However, structural constraints still limit growth, such as the ongoing troubles in freight and infrastructure.<\/p>\n\n\n\n

Global financial market sentiment is expected to remain neutral to positive, and credit rating agencies are more optimistic.<\/p>\n\n\n\n

South Africa is in the BB credit rating category as fiscal consolidation (debt-to-GDP stabilisation) occurs, leading to positive outlooks.\u00a0<\/p>\n\n\n\n

This would result in the rand stabilising and strengthening somewhat.<\/p>\n\n\n\n

The scenario also sees measures implemented to alleviate the impact of climate change on the economy. <\/p>\n\n\n\n

At the same time, very little expropriation without compensation occurs, which has no significant adverse effect on the economy.<\/p>\n\n\n\n

This economic case results in the rand moving positively, around R18.00\/USD by the end of 2025. <\/p>\n","protected":false},"excerpt":{"rendered":"

South Africa is expected to muddle along in 2025, but there is a risk that things turn sour, pushing the rand beyond the worst-ever levels it recently hit.<\/p>\n","protected":false},"author":92,"featured_media":772520,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11121],"tags":[1875,1329,20167,1498,3670,853],"class_list":["post-823114","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-finance","tag-anc","tag-da","tag-government-of-national-unity-gnu","tag-investec","tag-rand","tag-south-africa"],"_links":{"self":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/823114","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/users\/92"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/comments?post=823114"}],"version-history":[{"count":5,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/823114\/revisions"}],"predecessor-version":[{"id":823398,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/823114\/revisions\/823398"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media\/772520"}],"wp:attachment":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media?parent=823114"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/categories?post=823114"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/tags?post=823114"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}