Over the previous yr, solely two of the 16 key currencies monitored by Currencies Direct have confirmed to be extra resilient towards a resurgent US greenback than the South African rand. Between February 29, 2024 and February 24, 2025, the rand has strengthened by 4.6% towards the world’s dominant foreign money, with solely the Malaysian ringgit managing a greater efficiency. Within the course of, South Africa’s foreign money has left the Euro, the British pound and all of the currencies of the opposite BRICS nations floundering.
The US greenback’s bull run in direction of the top of 2024 was triggered primarily by expectations of upper financial development, following the Republican Social gathering’s victory within the presidential election. US President Donald Trump has promised to observe a growth-enhancing macroeconomic coverage method, which is prone to embody tax reductions and has already led to elevated tariffs on imports, particularly on neighbouring international locations and China.
A stronger US financial system could decelerate the declining development of inflation, which may restrict the extent and regularity of additional rate of interest cuts by the Federal Reserve. Though the yield on 10-year US Treasury bonds has declined marginally from its current excessive of virtually 4.8%, it’s greater than 260 foundation factors larger than three years in the past and, at a price of 4.4% on February 24, stays engaging to fund managers across the globe.
US Treasury yields stay engaging
Prospects of US bond yields remaining at present ranges, mixed with the battle in Ukraine and the Center East, has triggered fund managers to flock again to the US greenback. On the finish of January, the US greenback index rose to above 108 for less than the third time in additional than three many years. As just lately as September 2024, the so-called “Dixie” had dropped to 100 on the again of a reasonably aggressive begin to the rate-cutting cycle, however the election of Trump has, for now, put paid to prospects of greenback weak spot.
It’s no coincidence that the renewed energy of South Africa’s foreign money has occurred within the aftermath of final yr’s parliamentary elections, which resulted in a historic shift to a coalition authorities. The upshot of enhanced home and worldwide investor sentiment over South Africa’s post-election financial prospects is a perception that financial reforms geared toward fostering larger development will collect tempo, now that the DA is a part of the nationwide govt.
The DA boasts a formidable observe file of sound public sector administration at municipal and provincial degree within the Western Cape. This experience, mixed with the declared intention of the Authorities of Nationwide Unity (GNU) to hunt nearer cooperation with the personal sector within the restore, upkeep and enlargement of the nation’s infrastructure, has already prompted the World Financial institution to lift its 2025 GDP development forecast for South Africa to 1.8%, from 1.3% beforehand.
Exports shine in 2024
Stability of funds stability lies on the coronary heart of the exceptional resilience of the rand over the previous twelve months. Throughout 2024, South Africa recorded its eighth successive commerce surplus, while the monetary account of the stability of funds has been in surplus for eight successive quarters with a mean internet quarterly internet influx of virtually R17 billion.
Thankfully, a number of manufacturing sectors proceed to generate substantial international change earnings, with the sectors for automobiles, elements and spares and meals processing on the forefront.
The upcoming removing from gray itemizing
Nationwide Treasury additionally deserves credit score for the sustained efforts to fulfill the necessities for South Africa’s removing from the so-called gray listing. The Monetary Motion Process Power (FATF), a world standard-setting physique, added South Africa to this listing three years in the past, as a consequence of perceived gaps in home laws geared toward compliance with anti-money laundering and counter financing of terrorism guidelines.
Throughout February, Nationwide Treasury introduced that South Africa is now deemed to have addressed 20 of the 22 motion objects within the motion plan. Which means there are simply two objects to be resolved within the subsequent reporting interval that runs from March 2025 to June 2025. With a purpose to take away the final two deficiencies, South Africa should reveal a sustained enhance in investigations and prosecutions of significant and complicated cash laundering and a sustained enhance within the efficient identification, investigation, and prosecution of the complete vary of terrorism financing actions.
Additional progress on this regard would allow South Africa to be thought-about for delisting from the FATF gray listing in October 2025, which ought to present one other enhance for the rand change price.
Dr Roelof Botha is financial Advisor to the Optimum Funding Group.
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