Stronger rand sparks optimism, but consumers may need to wait for relief

South Africa’s rand has rallied sharply over the past year, strengthening from around R18.50 to the US dollar to about R16, levels last seen in mid-2022.

At the time of publishing, it was trading at R16.01 to the US dollar.

The currency has also gained against the euro and the pound, prompting questions about whether the move marks a lasting shift or a temporary surge.

Is this a structural change?

Harry Scherzer, the CEO of Future Forex, argues the rally is not just about a weaker US dollar.

“I’m really excited about where the rand’s at because I think it is a structural change,” Scherzer said. “Yes, you have a weak dollar, but over and above that, you actually have a strong rand.”

He pointed to improved sentiment around South Africa, better fiscal and monetary policy, the formation of the Government of National Unity, and the end of load shedding.

“You can see that our infrastructure is improving, and our governance really seems to be improving, at least according to the market,” he said. “Investors are realising that the rand is largely undervalued.”

What it means for consumers

In theory, a stronger rand should lower the cost of imported goods such as machinery, fertiliser, electronics and vehicles. But Scherzer cautioned that price relief will not be immediate.

“The goods we’re seeing in stores today were typically bought at prices of R17-plus to the dollar,” he explained. Many importers lock in exchange rates months in advance through forward cover, which delays the impact of currency moves.

“For us to see an improvement in pricing in local stores, we need this rate to hold for three to six months,” Scherzer said, adding that local inflation could also offset currency gains.

The downside for exports and tourism

A stronger rand can make South African exports more expensive and reduce the country’s appeal as a cheap tourist destination. But Scherzer argues the currency remains far weaker than its fair value.

“We’ve had so many years of continuous weakness that we’re actually so far on the wrong side of that balance,” he said. “Right now, all we should be hoping for is an improvement of the rand because of how undervalued we are.”

While exporters may feel some pressure, Scherzer believes the broader benefits of a healthier economy outweigh the risks, at least for now.

For more information, listen to Scherzer using the audio player below: