Everybody suddenly loves the rand

The rand has strengthened from more than R19 to the US dollar in April 2025 to better than R16 per dollar this week as the American currency continues to weaken and precious metal prices continue to soar.

The gold price added a cool $500 to nearly $5 100 per ounce in a matter of days and platinum breached $2 770 per ounce, the highest in decades.

Read:
Rand strengthens below R16/$ for first time since 2022
SA nears fiscal turning point, treasury chief says
SA stocks hit fresh record high, gains seen extending

What is interesting about the strengthening of the rand is that all the usual risks associated with the exchange rate seem to have disappeared.

Suddenly, nobody is talking about lacklustre economic growth, trade sanctions, the rather high possibility that SA would be excluded from the US African Growth and Opportunity Act (Agoa), high unemployment, failing municipalities and ongoing corruption.

The consensus view among economists seems to be that the rand will continue to appreciate.

‘Combination of factors’

Johann Els, group chief economist at PSG Financial Services, says the factors that started the strong trend in the rand since the middle of 2025 will probably drive the rand stronger.

“Rand strength since the second half of last year and this far into 2026 is as a result of a combination of factors, of which a weaker US dollar is significant.

“The weaker dollar we have seen is as a result of US policy uncertainties created by the new US administration,” says Els.

“The uncertainties include policies around the fiscal situation, around tariffs, around general policy volatility and around further interest rate cuts.

“I think those are conditions that are likely to continue into 2026 and into the medium term. I expect that we are heading into a weaker dollar cycle as opposed to the strength we have seen over the last decade or so.”

He mentions that other results of disruptive US policies and geopolitical uncertainty have led investors to be more risk-averse and to look at assets to hedge risks.

“Precious metal prices have increased significantly, and that has been a huge uplift for SA in terms of trade,” he adds.

Read: Gold surges past $5 000 for first time ever

“High metal prices have given a big boost to our exports as precious metals are our biggest exports, while oil prices – our biggest import – have been low.

“This has obviously been supportive of the exchange rate.”

Local factors

This is not just a story of dollar weakness – local factors have helped the rand as well.

Els says the economy surprised “slightly to the upside” in 2025.

“Growth came in better than expected. Consumer spending is supported by lower inflation and lower interest rates.

“Also, structural constraints have receded somewhat. Electricity constraints have virtually disappeared and we are making headway with some of the other constraints, such as those around logistics.

“For instance, Transnet volumes have improved,” he says, adding that water supply and the easing of regulations – which makes it easier for the private sector to be involved in the economy – can also be seen as a big plus.

Read: SA’s reform success creates options in a disrupted global order

“On the fiscal side, strong precious metal prices have not only boosted tax income for government, but also other tax income. Vat [value-added tax] and personal income tax surprised to the upside as well.

“That this has helped improve the fiscal situation can be seen in the fact that the debt-to-GDP ratio has probably peaked and [should start] trending lower in the next few years.

“We have seen an upgrade in credit ratings and I expect more upgrades in credit ratings.

“It is important to remember that rating agencies have been generally behind the curve in terms of changing their ratings,” says Els.

He also mentions SA’s removal from the Financial Action Task Force (FATF) ‘grey list’.

“Then, of course, we have a lower inflation target. All that boosted confidence,” he adds.

Read: Kganyago sees inflation around 3% in 2026

Els expect these factors to continue to support the rand in 2026.

“The rand, despite its recent strength, is still undervalued compared to its purchasing power parity fundamentals.

“I expect that the rand can potentially strengthen quite a bit further – to a ‘handle’ of R15,” says Els, meaning that the rand will be quoted as R15-something by trading between R15 and R15.90 to the dollar.

“A handle of R14 is even possible.”

Over the medium term, Els expects that the rand will be less volatile too, and will depreciate more slowly against the dollar as SA’s new inflation target is closer to international inflation rates.

Additional aspects

FNB senior economist Koketso Mano reiterates the factors that have supported the rand – and notes that investment risk in SA has decreased.

“The country’s removal from the FATF grey list and the recent S&P sovereign rating upgrade have reinforced confidence, highlighting progress in economy-wide reforms that should boost fixed investment and enhance long-term growth potential.

“This improvement is already evident in increased inflows into the local bond market and rising foreign participation in the property sector,” says Mano.

“Looking ahead, greater fixed investment through public-private partnerships could gain momentum, complementing household consumption as a key driver of economic growth and employment creation.

He also notes that policy uncertainty in the US has weighed on the dollar, benefitting the rand.

Read: Tense Fed is set to lead global peers with interest-rate hold

“While loose fiscal policy in advanced economies, including the US, may support short-term growth, it raises medium-term vulnerabilities as asset repricing is likely to pressure currency valuations.

“As a result, the dollar could remain cyclically weaker until these imbalances unwind,” he notes.

“Meanwhile, heightened geopolitical tensions and volatility in advanced economies have driven investors toward safe-haven assets, supporting precious metal prices. As a net exporter, South Africa has benefitted from stronger terms of trade, aided by contained import costs, which have helped narrow the current account deficit and further supported the rand.

“Looking ahead, the rand is likely to remain underpinned by a weaker US dollar, favourable terms of trade and renewed optimism about SA’s prospects,” says Mano.

Read: Why is the rand so strong and the economy so weak?

He is one of only a few commentators who mention that some risks remain by saying that “bouts of risk aversion could weigh on emerging market currencies”.

However, a list of possible risk factors is hard to find, and that in itself may be a risk.

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