Many significant events have occurred since last year’s State of the Nation Address (SONA), the most prominent being the Russia-Ukraine war and the hawkish Fed. Back home, South Africans have also faced many challenges such as poor economic growth, unemployment and a cost-of-living crisis as we attempt to recover in the post-pandemic era.
The volatile rand had a tumultuous year from hitting a high of R14.50/$ in March 2022, to a low of R18.50/$ in November 2022. It’s essential to analyse the global and local events surrounding key currency fluctuations when forecasting for the year ahead.
Citadel Global, the foreign exchange and treasury experts, have released their much-awaited annual analysis of the rand fluctuations between SONA 2022 and SONA 2023. Bianca Botes, Director at Citadel Global, explains that the rand is mostly affected by international monetary decisions and events and less so by local factors, although these are contributing factors.
As of 10th February 2023, the rand is trading at R17.80.
KEY MOMENTS THAT DROVE THE RAND
Please refer to the corresponding infographic – which is available for your use.
- 10 February: the reaction to SONA had little impact, rand trades at R15.24/$.
- 24 February: Russia invades Ukraine and risk asset selloffs ensue as the United States (US) impose sanctions on Russia, rand trades at R15.29/$.
- 10 March: inflation is top of mind, US inflation reaches a 40-year high, peace talks between Ukraine and Russia fail, commodity prices soar and assist the rand to trade to best levels since before the invasion at R15.08/$.
- 25 March: North Korea adds to geopolitical woes, the South African Reserve Bank (SARB) hikes interest rates causing the rand to rally at best levels since October 2021, R14.50/$.
- 3 June: Shanghai eases restrictions, SA unemployment eases, SA see some recovery from floods, while metal prices remain elevated in support of the rand which trades at 15.45/$.
- 1 July: the rand trades at its weakest level since October 2020 around R16.40/$, pressured by severe power cuts in the country as Eskom contends with multiple plant breakdowns due to labour protests over wages. There is widespread concern that the round of loadshedding could have long-term effects on the country’s economic growth. South Africa’s higher-than-expected inflation data in June points to a further interest rate hike in July.
- 22 July: the rand strengthens towards R17.00/$ after SARB raised the key repo rate by more than expected, while signalling further aggressive monetary tightening ahead in an attempt to tame domestic inflation. The rand trades close to a 23-month low of R17.20/$, hit on 14 July, and has shed nearly 6.5% so far in 2022. This as the country battles with prolonged worker strikes and rolling blackouts in addition to growing global recession fears.
- 19 August: the rand comes under pressure weakening back above the R16.60/$ mark as local retail sales disappoint. In addition, disappointing economic data from major economies reinforces global recession fears, while local under-performance in the mining and manufacturing industries cemented expectations that South Africa’s economic activity will shrink in the second quarter amid intensifying load shedding, adverse weather conditions, and higher production costs.
- 2 September: the rand is caught in the crossfire of a strengthening dollar to trade at R17.30/$ as Fed Chair, Jerome Powell, suggests the US Central Bank will keep raising interest rates to tame inflation, which bolstered the greenback.
- 23 September: the rand remains in fragile terrain, near a two-year low of R17.79/$, pressured by a stronger dollar and amid deteriorating domestic economic conditions, as loadshedding is posing a major threat to the country’s economic outlook.
- 14 October: dollar soars to highest level in 20 years, rand under pressure at 18.19/$.
- 4 November: the rand depreciates towards R18.50/$, back to levels not seen since May of 2020, on the back of a rallying greenback. The SARB Governor, Lesetja Kganyago, says South Africa still has space to raise interest rates, citing the need to get inflation expectations more anchored around the midpoint of its target range at 6%. He added that the consequences of the central bank loosening its grip on inflation and falling behind global peers, as rates are being normalised, would be “too costly”. The rand continues to take its cues from the global market landscape.
- 2 December: the rand suffers significant losses, depreciating sharply to R17.90/$, on the back of rumours that President Ramaphosa is considering his resignation. Further losses were capped by a weaker dollar.
- 27 January: rand gains momentum to the R17.01/$ level ahead of US growth figures and the SARB interest rate announcement. Both announcements surprise markets, with US growth overshooting forecasts and SARB hiking interest rates less than expected.
- 3 February: Strong employment data from the US, reignited fears for further possible tightening from the Fed, dampening risk appetite, and sending the rand back into a decline against major currencies, to trade at R17.48/$.
- 10 February: The rand continues to feel the pressure of uncertainty around the power crises, and now the newly implemented state of distaste, while the global backdrop also continues to weigh on risk appetite. The rand is on the backfoot, to trade at R17.80/$, weakening from the mid R17,60’s in intra -day trade on Thursday.
Written by: Citadel Global Director, Bianca Botes