The Outlook for the South African rand in 2024

It’s only natural that when you begin a new year, you look to the markets to try and understand what your investment strategy should be.

Living in South Africa and working in rands, we are often influenced by the rand’s instability when considering where and how we should invest. But let’s say it as it is – the rand is notoriously volatile. A known fact and something we wrote about in our article We know the rand is volatile. But, as we discovered in the aforementioned article, influences on the rand and it’s resulting volatility are not necessarily caused solely by local occurrences. In fact, as we set out –

South Africa’s currency is known for its volatility, we get that.

It experiences frequent and unpredictable changes in value. But it would seem that the unexpected changes in local economic indicators don’t necessarily have a significant impact on the rand’s volatility. Not really anyway. Instead, both domestic and global factors will impact the rand’s volatility. It’s kind of complicated but also really simple.

Let’s illustrate why we say this by listing the various factors that can impact the volatility of the rand –

  • global factors such as commodity price volatility and financial market risk perceptions;
  • local political uncertainty;
  • increased volatility in South Africa’s main exported and imported commodity prices, as well as
  • heightened global financial-market risk perceptions,

all contribute to the rand’s instability.

And that remains relevant to this article.

Local and Global Occurrences

To start off with, as set out by Moneyweb in their article titled Could 2024 be the year the rand recovers some glory

“History has shown that it is never a good idea to be bullish on the rand, but could 2024 prove to be one of the rare occasions when the local currency smokes the US dollar?

The rand weakened against the US dollar in seven of the last 10 years. The last three years were a rout, with the rand losing nearly 30% against the US dollar as Covid, load shedding, grey-listing by the Financial Action Task Force and issues at Transnet brutalised the local currency.

Why should 2024 be any different?”.

And as set out by BusinessTech – 

“Experts at Bank of America (BofA) said that the rand will likely benefit from the market’s realisation that the dollar is overvalued. The expected decline in the US dollar should see improved capital flows to emerging markets – benefitting the rand, they said. According to the latest fund manager survey from BofA, the rand is expected to end the year at R17.73/$.

 The rand is currently at R18.83 and hit R19.19 earlier this week. Given the volatility of the rand, the experts noted that any gains would come off a low (weak) base. However, this improvement comes with a catch – any shifts are likely to be ‘stop-start’ and only noticeable in the second half of the year due to anxieties over the South African national and provincial elections.

 Echoing these sentiments, economists at Alex Forbes said that 2024 for the rand looks set to be a “year of two halves”. “The first half will likely be dominated by election campaigning ahead of the May-August national elections; the second half will be dominated by global developments as risk sentiment towards emerging markets is expected to turn positive,” Alex Forbes said”.

Further to the above and according to Moneyweb in their article Fund managers see rand strengthening to R17.73 in 2024

“A better year for local bonds and equities is on the cards, with the rand strengthening towards the end of the year.

The rand got off to a weak start to 2024, touching R19.21 to the dollar this week, before recovering to R18.80 by Wednesday. Tatonga Rusike, sub-Saharan economist at BofA Global Research, believes the SA economy should achieve GDP growth of about 1.5% in 2024, considerably better than the expected 0.5% for 2023, once the country gets through the budget next month and the elections in May. Any potential shocks to the economy are likely to come in the first half of the year, allowing for a more stable environment to emerge in the second half. SA’s abysmal growth in 2023 was in large part due to structural issues, such as Eskom load shedding and logistics bottlenecks at Transnet. Massive private investment in solar power has reduced the impact of load shedding on the economy, suggesting the worst may be behind us.

SA can expect a 125 basis points (bps) reduction in interest rates in 2024, which compares with the 475bps increase between 2021 and 2023. On the fiscal side, the medium-term budget shows evidence of improving revenue collection, though debt-to-GDP is likely to widen to around 80% before improving over the next few years”.

And finally according to Stian Van Zyl, Forex Manager at Kuda FX, the following factors will influence the rand in 2024 –

  • The US is anticipated to reduce interest rates 5-6 times in 2024 by 25 basis points. A lower US interest rate would force foreign investors to seek more returns elsewhere and the rand is a well-known proxy for emerging markets.
  • Any change in this view would influence the rand and certainly cause some volatility over the next year.
  • US elections and SA elections will certainly have a big impact on the USD and rand respectively. Elections often create uncertainty, and financial markets react to this uncertainty. Traders and investors may adjust their positions in response to election-related news and developments, leading to currency volatility. Market sentiment plays a crucial role in currency valuation.

It appears that market voices all have a reasonably similar outlook for 2024. The rand will remain volatile, influenced by both local and global occurrences, with traders and investors needing to adjust their positions in response to developments. But the rand may still end in a stronger position towards the end of 2024.

It is a matter of watch and see, considering individual financial goals, risk appetite and personal diversification needs. And one needs to be quite strategic when doing this. Because global markets are not the only deciding factor. They can’t be. With each ebb and flow there would be a knee jerk reaction to do exactly that – react. And reactive investment as opposed to strategic investment is a bad move.

We must also keep in mind the age old saying – what comes up must come down. It’s the nature of things. And especially true where foreign exchange is concerned. Even the most prudent investor tries to “time” things perfectly, hoping to capitalise on rand fluctuations for advantageous offshore investment.

But trying to correctly time moving rands offshore to gain the best return on investment yields little to no significant advantage. Because trying to time the market often has little bearing on the long-term outcomes of offshore investment strategies. The outcome over time is very similar, irrespective of whether the funds are taken offshore during periods of rand strength or weakness.

So, stay the course, while keeping your eye on developments. No knee jerk reactions. Strategy being key.

(Sources used and to whom we owe thanks: Moneyweb here and here; BusinessTech and Reuters).

As a South African resident looking to invest, it involves a careful consideration of timing, the consideration of both local and international factors, calculated planning around your investment strategies and a fair understanding of the markets. Partnering with an experienced FX service provider like Kuda FX is key to making your investment decisions not only smooth and hassle-free, but the correct strategic move too.

If you have any queries on the information we have set out above, please feel free to get in touch with us.

We cannot wait to help you with all your forex needs!

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