The rand experienced its best week in more than six months, fuelled by positive domestic data and the potential for lower interest rates in the US.
Despite losing some ground on Friday, the local currency gained about 2.5% over the week, making it the best week since August.
RMB’s head of forex execution, Matete Thulare, said the rand’s strength was driven by positive domestic data, which showed that SA’s economy returned to growth in the fourth quarter, with GDP expanding 0.6% quarter on quarter.
Another positive was that the country’s current account deficit shrank by more than expected in the last three months of the year, led by better exports and a decline in imports.
At 6pm on Friday, the rand was 0.5% weaker at R18.24/$.
Thulare expects the rand to consolidate its gains, with a trading range of R18.10 to R18.30 against the dollar. The overall target level for the rand remains R17.90/$, he said.
Shaun Murison, senior market analyst at IG, said the potential for lower interest rates in the US also contributed to the rand’s strength. “The Federal Reserve has hinted at a possible rate cut in the coming months, which could boost emerging market currencies like the rand.”
Meanwhile, the fallout from US President Donald Trump’s increasing tariff hikes has weighed on the dollar, as concerns about economic growth and higher inflation have driven investors towards safe havens, including gold.
Higher export commodity prices, such as for gold, platinum and copper, also supported the rand.
“Recent disappointing economic indicators from the US have shifted market expectations, with investors now pricing in three potential interest rate cuts this year,” Murison said, referring to US consumer confidence, business activity and retail sales data.
Despite its gains against the dollar, the rand has lost ground against the strengthening euro, Murison said. “The European currency’s upward momentum stems from the European Central Bank’s surprisingly hawkish tone, even as it implemented a rate cut this week.”
The JSE ended the week on a positive note, with the all share index gaining the most since the week ended September 27 2024. The precious metals and mining index was the star performer, with big gains in platinum stocks pushing the index to a 17.17% gain for the week, its biggest since October 2023.
Market participants will be watching the coming week’s budget statement by finance minister Enoch Godongwana, which has been rescheduled for March 12. It was initially set to be delivered on February 19, but was postponed due to the need for further deliberations.
The delay was intended to ensure consensus on key fiscal decisions, including Godongwana’s proposed spending increases and alternatives to his proposed VAT increase. The budget will outline the government’s financial, economic and social commitments for the 2025 fiscal year, including plans for revenue collection and expenditure allocation, which may affect the rand’s direction.
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