<\/p>\n
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.<\/p>\n
The gold price added a cool $500 to nearly $5 100 per ounce in a matter of days and platinum breached $2 770 per ounce, the highest in decades.<\/p>\n
Read:
Rand strengthens below R16\/$ for first time since 2022
SA nears fiscal turning point, treasury chief says
SA stocks hit fresh record high, gains seen extending<\/p>\n
What is interesting about the strengthening of the rand is that all the usual risks associated with the exchange rate seem to have disappeared.<\/p>\n
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.<\/p>\n
The consensus view among economists seems to be that the rand will continue to appreciate.<\/p>\n
\u2018Combination of factors\u2019<\/strong><\/p>\n 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.<\/p>\n \u201cRand 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.<\/p>\n \u201cThe weaker dollar we have seen is as a result of US policy uncertainties created by the new US administration,\u201d says Els.<\/p>\n<\/blockquote>\n \u201cThe uncertainties include policies around the fiscal situation, around tariffs, around general policy volatility and around further interest rate cuts.<\/p>\n \u201cI 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.\u201d<\/p>\n 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.<\/p>\n ADVERTISEMENT<\/p>\n CONTINUE READING BELOW<\/p>\n<\/div>\n<\/div>\n \u201cPrecious metal prices have increased significantly, and that has been a huge uplift for SA in terms of trade,\u201d he adds.<\/p>\n Read: Gold surges past $5 000 for first time ever<\/p>\n \u201cHigh metal prices have given a big boost to our exports as precious metals are our biggest exports, while oil prices \u2013 our biggest import \u2013 have been low.<\/p>\n \u201cThis has obviously been supportive of the exchange rate.\u201d<\/p>\n Local factors<\/strong><\/p>\n This is not just a story of dollar weakness \u2013 local factors have helped the rand as well.<\/p>\n Els says the economy surprised \u201cslightly to the upside\u201d in 2025.<\/p>\n<\/blockquote>\n \u201cGrowth came in better than expected. Consumer spending is supported by lower inflation and lower interest rates.<\/p>\n \u201cAlso, 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.<\/p>\n \u201cFor instance, Transnet volumes have improved,\u201d he says, adding that water supply and the easing of regulations \u2013 which makes it easier for the private sector to be involved in the economy \u2013 can also be seen as a big plus.<\/p>\n Read:\u00a0SA\u2019s reform success creates options in a disrupted global order<\/p>\n \u201cOn 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.<\/p>\n \u201cThat 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.<\/p>\n ADVERTISEMENT:<\/p>\n CONTINUE READING BELOW<\/p>\n<\/div>\n<\/div>\n \u201cWe have seen an upgrade in credit ratings and I expect more upgrades in credit ratings.<\/p>\n \u201cIt is important to remember that rating agencies have been generally behind the curve in terms of changing their ratings,\u201d says Els.<\/p>\n<\/blockquote>\n He also mentions SA\u2019s removal from the Financial Action Task Force (FATF) \u2018grey list\u2019.<\/p>\n \u201cThen, of course, we have a lower inflation target. All that boosted confidence,\u201d he adds.<\/p>\n Read: Kganyago sees inflation around 3% in 2026<\/p>\n Els expect these factors to continue to support the rand in 2026.<\/p>\n \u201cThe rand, despite its recent strength, is still undervalued compared to its purchasing power parity fundamentals.<\/p>\n \u201cI expect that the rand can potentially strengthen quite a bit further \u2013 to a \u2018handle\u2019 of R15,\u201d says Els, meaning that the rand will be quoted as R15-something by trading between R15 and R15.90 to the dollar.<\/p>\n \u201cA handle of R14 is even possible.\u201d<\/p>\n Over the medium term, Els expects that the rand will be less volatile too, and will depreciate more slowly against the dollar as SA\u2019s new inflation target is closer to international inflation rates.<\/p>\n Additional aspects<\/strong><\/p>\n FNB senior economist Koketso Mano reiterates the factors that have supported the rand \u2013 and notes that investment risk in SA has decreased.<\/p>\n ADVERTISEMENT:<\/p>\n CONTINUE READING BELOW<\/p>\n<\/p><\/div>\n<\/div>\n \u201cThe country\u2019s 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.<\/p>\n \u201cThis improvement is already evident in increased inflows into the local bond market and rising foreign participation in the property sector,\u201d says Mano.<\/p>\n<\/blockquote>\n \u201cLooking ahead, greater fixed investment through public-private partnerships could gain momentum, complementing household consumption as a key driver of economic growth and employment creation.<\/p>\n He also notes that policy uncertainty in the US has weighed on the dollar, benefitting the rand.<\/p>\n Read: Tense Fed is set to lead global peers with interest-rate hold<\/p>\n \u201cWhile 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.<\/p>\n \u201cAs a result, the dollar could remain cyclically weaker until these imbalances unwind,\u201d he notes.<\/p>\n<\/blockquote>\n \u201cMeanwhile, 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.<\/p>\n \u201cLooking ahead, the rand is likely to remain underpinned by a weaker US dollar, favourable terms of trade and renewed optimism about SA\u2019s prospects,\u201d says Mano.<\/p>\n Read: Why is the rand so strong and the economy so weak?<\/p>\n He is one of only a few commentators who mention that some risks remain by saying that \u201cbouts of risk aversion could weigh on emerging market currencies\u201d.<\/p>\n However, a list of possible risk factors is hard to find, and that in itself may be a risk.<\/p>\n Follow Moneyweb\u2019s in-depth finance and business news on WhatsApp here.<\/em><\/p>\n<\/p><\/div>\n\n
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