2022: The Rand’s
Year Ahead


Mike Keenan

Head of Fixed Income
and Currency Research


What trends and events will shape the value of the rand in 2022?

Last year was another turbulent one for the rand. The South African currency traded at ZAR14,59 to the US dollar on 1 January, then dipped below ZAR13,50 in June, before climbing to ZAR15,95 on 31 December. How will the rand perform in 2022, and what factors will influence that performance?

As for the forecast performance, Mike Keenan, Fixed Income and Currency Strategist at Absa, feels optimistic. “We’re pretty positive about the rand, especially after the selling that we saw towards the end of 2021,” he says. “We think that sell-off was overdone.”

He cites five factors as reasons for that optimism.

1. US rate hikes

The US Federal Reserve is expected to enact a series of interest rate hikes, which would have far-reaching consequences across global markets – especially for riskier assets such as the rand. Keenan believes the rand will not be as negatively impacted as some investors and analysts fear it might be. If anything, he says, the historical playbook suggests that the rand should do quite well.

“When we examined the previous two rate hiking cycles in the United States, we found that the rand was stable or stronger during those periods,” he says. “In previous hiking cycles the rand weakened in anticipation of the hiking cycle – as it has done now – and when that cycle kicked off it was stable to firm. We think there is a lot of misguided fear that the rand is going to weaken as the Fed tightens.”

2. Global economic outlook

Although the global economy is widely expected to slow in 2022, Keenan says it is still likely to be firm, with above-trend growth. “That bodes well for commodity prices,” he says. “It also bodes well for South Africa’s current account balance, which is currently in surplus. We think it will remain in surplus for the first three quarters of 2022.”

3. Inflation

Inflation is expected to come down in 2022 as the South African Reserve Bank hikes policy rates – and from an inflation differential perspective, the rand is scoped to strengthen. “If you look at our Purchasing Power Parity model, it’s saying the rand is fairly valued at around USD14,50,” says Keenan. “So we think the rand will strengthen, particularly in the first half of the year, to about USD14,75. It could struggle to keep that strength in the second half of the year, however, as our current account balance moves into deficit in the fourth quarter.”

4. Geopolitics

Domestically, the run-up to the ANC’s national conference in December could produce some political (and market) volatility. But the more immediate factor that will affect the value of the rand lies overseas, in Ukraine. “We really don’t know how that’s going to pan out,” Keenan says. “In January the rand was doing quite well, despite simmering tensions in Russia. People were buying gold, and moving out of Russia and into South Africa as a preferred emerging market destination. But if we go into a full-scale war, our sense is investors will lose their appetite for riskier assets”

That global uncertainty could have an impact on the gold price, which may also affect the value of the rand. “Even though South Africa exports a lot of gold, the rand can weaken – and has done so – at the height of a high gold price,” he says. “Gold is a safe haven asset and the gold price should do well, but risk aversion could trump that, and that could also see the rand weakening.”

5. National debt

Foreign investors were not big buyers of South African bonds or equities in 2021, leaving good buying opportunities (and a lot of risk premium) in the bond market. “If South Africa is able to stick to its promises that it is going to consolidate the debt, then foreigners may be inclined to invest,” says Keenan. “That should bring some nice capital inflows into the country.”

Mike Keenan

Head of Fixed Income and Currency Research

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