The finished 2023 on somewhat strong terms in December, closing at R18.28 against the US Dollar and R23.29 against the British Pound.
The strong December was quickly forgotten, as the Rand got clobbered during January, falling to a low of R19.22 and R24.43 against the USD and the GBP, respectively. This represented a decrease of just over 5% for each pair.
The Rand has recovered somewhat to a current rate of R18.85 against the US Dollar and R23.92 against the British Pound, however this still represents a decrease of over 3% against each pair.
These moves have left traders and analysts unsure of what is causing such significant underlying Rand weakness – even when compared to the basket of emerging-market currencies.
The Economist recently revised its 2024 Big Mac Index, utilising the theory of purchasing power parity. This theory is based on the idea that, eventually, exchange rates will adjust to make the cost of a similar set of goods the same in different countries. This index shows that the Rand is still severely undervalued against the US Dollar in 2024, and has become even more undervalued since 2023, becoming the fourth most undervalued currency in the world.
While this gives Rand bulls hope of eventual mean reversion, it has not proven the case in recent years, and there is no evidence yet to suggest this trend will change for the Rand.
Looking more closely at short-term factors, the Rand declined slightly early Tuesday morning. This movement was in response to the anticipation of upcoming local budget balance data and the Federal Reserve’s monetary policy decision later this week in the US.
The (DXY) has experienced a robust beginning in 2024, with a movement exceeding 2%, which has not been beneficial to the Rand. Supporters of the Rand are optimistic that a dovish stance in the Fed’s monetary policy decision will trigger a shift from the US Dollar to riskier currencies. However, if the outcome is contrary, it could be detrimental to the already fragile Rand.
Upcoming market events
Tuesday, 30 January
- ZAR: (December)
- USD: (December)
Wednesday, 31 January
Thursday, 1 February
Friday, 2 February
- USD: (January)
- USD: (January)
