The South African rand reached its strongest level in nearly a year, trading at R18 to the dollar recently.
This milestone coincides with the country’s progress towards establishing an official Government of National Unity, with only a few steps remaining.
The first major hurdle was cleared when the ANC-DA-IFP-led bloc elected agreed-upon leaders for the country, including the Speaker, Deputy Speaker, and President, during parliament’s initial session last week. This was followed by appointments in the National Council of Provinces and at the provincial level with premiers.
President Ramaphosa’s inauguration was scheduled for Wednesday, with his cabinet announcement expected in the coming days, a development that will significantly impact local markets.
Citadel Global Director Bianca Botes noted that investors will be closely watching the cabinet’s size and the chosen ministers for each government function, indicating that the rand is currently on the ‘front foot.’
Investec chief economist Annabel Bishop attributed the rand’s strength to the high volatility experienced before and during the elections, which has since transformed into hope and stability following peaceful post-election negotiations.
Although the rand’s movement towards R18/$ was anticipated, as the currency was already trending in that direction before the elections, Annabel pointed out that it might struggle to remain below this level due to R18 being a key resistance point. Indeed, after briefly dipping below R18 (R17.97-R17.99), the rand quickly returned to R18.02.
The last time the rand traded under R18/$ was in July 2023. Besides local developments in establishing the new administration, Annabel mentioned that markets are also focused on the United States and the timing of interest rate cuts, which will contribute to market volatility around upcoming US data releases.
Annabel stated, “South Africa’s election outcome is seen as promoting stability, democracy, and unity; financial markets’ attention will likely turn to the U.S. interest rate cut timing, leading to modest volatility on related upcoming U.S. data releases. The better-than-expected outcome of the U.S. core CPI inflation rate for May last week is supporting the rand and emerging market currencies, although the rand couldn’t fully capitalise on this strength last week due to domestic political uncertainty.”
She also noted that global financial markets have adjusted their expectations for the first US interest rate cut, with certainty, to the November FOMC meeting. Expectations for a second cut in December are building, though not with complete certainty.
Despite the relief following the 2024 election, Annabel argued that the rand will still largely be influenced by global markets.
“U.S. economic activity has shown significant resilience, and the slow decline of its inflation has delayed the start of the U.S. interest rate cutting cycle, causing continued volatility for the rand. The rand’s direction will continue to be shaped by global events, particularly U.S. markets, but it is likely to strengthen this week due to the improving political environment in South Africa, which supports stronger growth.”
As of Wednesday morning, the rand was trading at these levels against major currencies:
- ZAR/USD: R18.02
- ZAR/EUR: R22.89
- ZAR/GBP: R19.34
Compiled by Aiden Daries
First published by Cape Town Etc
Also see: The Presidential Inauguration 2024: A star-studded affair
