GBP/ZAR, USD/ZAR: Here’s why the South African rand is rising

The South African rand has rebounded against key currencies like the euro, pound, and the US dollar. The GBP/ZAR exchange rate has tumbled for five straight days and is trading to its lowest level since December 2023. It has fallen by almost 6% from its highest point this year.

The USD/ZAR has also plunged for five days and has moved to its lowest level since January. Similarly, the EUR to South African rand has slipped to 19.8, meaning that the South African rand rally is broad-based.

USD/ZAR vs GBP/ZAR vs EUR/ZAR

This performance is happening even as the political tensions in the country continue rising. South Africa is expected to go to a vote on May 29th. As a parliamentary country, South Africans elect their members of parliament who in turn vote for the president.

Most analysts expect that the ruling Africa National Congress (ANC) will win this year’s election but at the lowest margin on record. That means that Ramaphosa will continue being the country’s president. 

In a statement on Monday, Ramaphosa said that he expects that his administration will continue to focus on debt stabilisation in the new administration. The country has a debt-to-GDP ratio of about 73.2%.

South Africa’s inflation has stabilised in the past few months. It has remained around 5% since October last year. At the same time, the country’s central bank has maintained interest rates steady at 8.25% since May last year. 

That means that investors in South Africa’s government bonds are generating a positive return when inflation is included. As a result, the bank will likely maintain rates higher for longer since inflation is above the bank’s midpoint of 4.5%.

The South African rand has also rallied because of the weaker dollar as hopes of Federal Reserve interest rate cuts rise. The US dollar index (DXY) has plunged from the year-to-date high of $106.50 to $105.  

Analysts expect the bank will deliver two rate cuts this year after last week’s weak economic numbers. Consumer confidence dropped to a two-year low while the unemployment rate rose to 3.9%. The manufacturing and services PMI numbers also moved to the contraction zone of below 50.

That explains why the USD/ZAR exchange rate has crashed. The EUR/ZAR and GBP/ZAR have a close correlation.

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