How sustainable is continuing rand rally as it edges towards R16/$?

The rand's 2025 rally is continuing into the new year - the South African currency has strengthened to its strongest level against the US dollar in more than three years.

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In early trade on Tuesday, the rand reached levels last seen in August 2022, trading at 16.32 against the dollar.

The rand's performance is of course strongly tied to that of the US currency, which is on a slide, as Investec's Annabel Bishop affirms.

"What we've seen is phenomenal rand strength to the dollar on a numeric basis... close to R16/$ now, and at its worst point at about 20 previously. Remember those days before the election!"

Is this as sustainable as some commentary suggests?

Much depends on what happens in terms of interest rate differentials, she says, looking at the all-important US interest rate and how cuts there have supported the rand as they weaken the dollar.

"And with the US expected to cut its interest rate by more this year - the expectation of sustainability is coming from that we're going to see a further weakness in the dollar pushing the rand stronger."

At the same time there is more positive optimism and growth in global financial markets (even in the face of the US attack on Venezuela), and therefore more risk taking, also towards South Africa, Bishop says.

However, she does sound a note of caution, pointing out that we are not seeing this same level of appreciation against other currencies like the euro or the pound.

Bishop also highlights the performance of SA bonds, which are delivering the lowest yield in around a decade, which helps to lower South Africa's debt costs.

"The government bond's our benchmark bond and has actually strengthened by close to 200 basis points. We have come through a difficult period politically, with the country really shown to perform under the government of national unity... and that's not just Operation Vulindlela which is now in Phase 2."

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"While we must not forget there are areas that lead into rand strength where we do need to improve further, there ARE areas where we're seeing significant progress with the expectation that we'll see further fiscal consolidation."