Can we call it a revival yet? The rand has staged something of a recovery this month, after plunging to its worst-ever exchange rate value against the US dollar at the start of lockdown. While ZAR is far from being out of the woods, the signs of encouragement are wide-ranging and economically sound.
ZAR TO USD EXCHANGE RATE ON FRIDAY 22 MAY
The current exchange rate sees the dollar trade at R17.69. By our previous, pre-coronavirus standards, this wouldn’t be great. But South Africa is pulling back from the depths of hitting R19.30 against the greenback – and there were genuine fears that the R20 mark could have been breached.
Mzansi has effectively gone through one of the worst-case scenarios, but also managed to avoid an actual “Doomsday”. The only place left for the rand to travel was upwards and the last few weeks have been kind to our currency, which has clawed back 8.3% of its value since reaching rock bottom.
WHY IS THE RAND IMPROVING AGAINST THE DOLLAR?
Experts believe that four major factors are sparking the exchange rate comeback.
- Gains have been spurred by global hopes of a coronavirus vaccine – even though investors “remain cautious.”
- Commodity prices and other risk assets – including the rand – have crept steadily higher in May.
- Some measures of financial market volatility declined, allowing traders and investors more room to operate.
- Alexander Forbes’ head economist Isaah Mhlanga, meanwhile, believes Mzansi’s bond yields are to thank:
“SA is in an environment where you can get anywhere north of 5% in returns from bond yields. The 10-year bond is still attractive for foreign investors from a return point of view. We may be in a position to receive ‘lots of capital inflows’ from foreign investors. That’d lead to a stronger currency [in] the next few months.”
Impressively, the rand barely flinched after SARB slashed the repo rate by another 0.5% on Thursday – 150 basis points have been reduced from the interest rate since mid-April.
Despite these changes, ZAR was only 10 cents worse-off against the dollar on Friday in comparison to the previous day. The challenge for South Africa’s currency will now be to maintain this momentum