Rand Rally to Extend Says Investec

Above: Hendrina Power Station cooling towers. Image © Eskom SOC

The South African Rand is forecast to strengthen against the U.S. Dollar, Pound and Euro by analysts at Investec.

The Johannesburg-based commercial lender and investment bank says the Rand's strength is expected to persist this year as a host of factors fall into line. Chief amongst these is a slower pace of interest rate cuts from the South African Rand compared to the Federal Reserve.

Investec cites money market pricing that shows a further 50 basis points of rate cuts are expected from the SARB in 2024 and a further 100 in 2025. This contrasts with the 250 basis points expected from the Fed.

Falling U.S. interest rates can also bolster global economic sentiment, which can underpin the pro-cyclical Rand. "Risk aversion has moderated in global financial markets as the first US interest rate cut since 2019 is now expected this week, after the very steep run up in the Fed Funds rate from 2022 to 2023 of 5.25%," says Annabel Bishop, an economist at Investec.

Additional supportive factors for ZAR include the improved economic growth environment in SA and stable electricity supplies. There was no load shedding in the second quarter, and the third and fourth quarters are expected to see this run continue.

Furthermore, "The turn in sentiment towards SA post-election and the formation of the GNU cannot be underestimated either, as it has provided a stabilising influence on the rand, with foreigners purchasing R18.5bn of SA bonds on a net basis since the election," says Bishop.

Investec forecasts an average USD/ZAR exchange rate of 18.00 this quarter and 17.70 in the fourth quarter, with 17.50 seen in the first quarter of 2025.

For GBP/ZAR, the forecast is 23.22, 22.83 and 23.06, respectively. For EUR/ZAR, the forecasts are 19.62, 19.47 and 19.54.