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Talking Rand strengthening because of the risk premium diminishing. Future of the GNU and the USD weakness.

💹 Major Currency Snapshot:

USDZAR: 18.86
EURZAR: 21.43
GBPZAR: 24.87

Introduction:

Recent fluctuations in the value of the South African rand against the US dollar have been influenced by a combination of global factors, particularly US trade policies, and domestic political developments related to the Government of National Unity (GNU). Both the easing of US tariff threats and signs of stability within the GNU have contributed to the rand’s strengthening. However, uncertainty remains due to potential shifts in US policy and the ongoing challenges within the South African political landscape.

Key takeaways from sources:

US President Donald Trump’s trade policies have caused significant volatility in global markets and impacted the South African rand. His announcements of higher-than-expected tariffs initially caused the rand to hit a historic low. A subsequent 90-day ceasefire in the trade war sparked a dramatic market rebound. However, uncertainty persists regarding the long-term impact of these policies, leading to continued market turbulence. The dollar itself has been approaching its lowest level in three years due to worries about slower US economic growth and deepening trade tensions.
The South African rand has been influenced by both global and domestic factors. Domestically, concerns about the stability of the Government of National Unity (GNU) have adversely affected the local currency. Tensions within the GNU, particularly surrounding the national budget, caused severe market volatility and a collapse in the rand.
Recent strengthening of the rand is attributed to a pause in US tariff plans and signs of stability within the GNU. Reports of constructive talks between key political parties in the GNU have raised hopes that the rift will be resolved, boosting investor confidence and strengthening the rand. The rand has recovered from its lows, strengthening back below R19.00/USD.
Analysts predict the rand could strengthen further. Some anticipate the rand could move towards R18.50/USD and potentially reach the R18.60/USD mark and see further strength this quarter if the calm in the markets and easing tensions in the GNU persist. A fading of concerns about the GNU’s stability could see the currency recover further.
The US dollar’s status as a safe haven is being questioned. Global investors are showing interest in other currencies, such as the euro, due to uncertainty surrounding the dollar and US economic policy. The dollar has drifted lower against other currencies like the yen and the euro.
The South African Reserve Bank (SARB) is likely to hold interest rates. Given the market volatility caused by US trade policies and the need for exchange rate stability, the SARB is expected to “sit on its hands” until there is greater clarity on US trade and monetary policies. While a weaker rand could put some upward pressure on domestic inflation, the fall in the price of Brent crude may offset this. There might be room for interest rate cuts from mid-year if inflation remains under control and the rand stabilizes.
The rand is considered a volatile emerging market currency. It often reflects broader risk aversion and experiences large daily swings amid global uncertainty. Despite the recent recovery, implied volatility for the rand-dollar pair remains high.
Businesses face uncertainty due to the unpredictable trade environment. This uncertainty can make businesses less likely to invest capital. The impact of US tariffs on US inflation is yet to be fully realized.

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Sources referenced:

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