Tracking the Rand in 2022

The Rand has gained almost 10% against the USD in 2022.

Let’s look at the driving factors…

  • Commodity prices surged on the back of the extensive sanctions against Russian products, specifically oil and gas;
  • South African is a net commodity exporter and higher commodity prices have boosted the Rand;
  • The Rand has an additional benefit in higher interest rates and the  South African Reserve Bank (SARB) has highlighted recently that they discussed increasing interest rates by 50bps instead of 25bps.  This admission added further support to the value of the Rand.
  • The Rand was over-sold (undervalued) at the end of 2021.

The above suggest that the Rand is currently in a favourable position.   This can change quickly under the following circumstances:

  • Commodity prices start to decline as a result of a peace deal between Russia and Ukraine.
  • Support for the Rand changes should the Russian/Ukraine crisis escalate significantly.  Under these circumstances there could emerge a search for safe haven assets such as the USD.

Looking ahead, both of the above scenarios could reduce support for the Rand.

Source:  Analytics Consulting FX Solutions