2024: The Year in FX

As we reflect upon the year that was, it is interesting to note how the outstanding feature of the year in the currency markets, was the benign trading conditions against better expectations. From January to December, the rand hovered around ZAR18 to the US dollar, and FX markets in general (which are typically the quickest to respond to market movements) delivered notably mild price movements compared to expectations.

This applied not only to the rand. It’s a global theme, and it runs contrary to the anxiety that we often find in media about the state of the country and the state of the world.

Key event risk – especially when it’s dotted across the calendar year, as it was in 2024 – tends to do that. It subdues prolonged FX volatility by putting the market in a wait-and-see mode. First it waited for the US Federal Reserve to cut interest rates. Then it waited for the South African elections (in late May), then the UK elections (July), and then the US elections (early November). And while the market waited for the next big news, those high levels of event risk failed to materialise into extreme volatility. Instead, the FX market has been very well-behaved overall.

That’s not to say that 2024 was a dull year for FX. Rather than the day-to-day volatility that observers of the rand would have seen in previous years, we witnessed periods of stability in the FX markets, punctuated by volatility over key event risks.

The market this year was shaped by three primary themes: the US inflation outlook, a plethora of elections, and ongoing geopolitical risk. Event risk, however, was the focal point.

In terms of inflation, we saw vulnerability in FX liquidity – particularly in Nigeria, Kenya and Ghana – as the tail risk from a series of global interest rate hikes suddenly presented a situation where Sub-Saharan Africa was not as attractive from an investment perspective. In a scenario like that one typically sees a run on currencies, and that’s exactly what happened across most of Africa. That tapered off as US rates came to a halt, and markets started to look at the opposing trade. That supported Sub-Saharan Africa in the short term, neutralising some of the runs on currencies.

Naturally, the rand was most vulnerable going into the South African general elections. However, the notable eradication of load shedding, in conjunction with the smooth transition into the government of national unity (GNU), resulted in an aggressive move lower, from R19/USD towards lows of around R17/USD.

As the year draws to a close, it’s still too early to tell how the markets will react to Donald Trump’s victory in the US Presidential Elections. Going into November’s polls, the markets were heavily positioned in a cup and handle (C&H) approach, indicating a temporary pullback followed by a renewed upward trend. We expect to see volatility in the rand, as a knock-on effect of the concentrated risk in China, Mexico and the Eurozone, whose currencies will be targeted by Trump’s proposed tariffs.

What does this mean for 2025? Markets tend to work in cycles, and FX markets are no different. After a prolonged period in the bond markets where interest rates go higher, you’ll typically see a migration towards interest and fixed income markets. If global rates continue to drop, fixed-income markets will become less appealing, and we expect to see we expect to see a migration back into FX.

Globally, we anticipate a repeat of the volatility we saw in the early days of President Trump’s first term in office – though not to the same extent. His proposed tariff implementations will generate volatility as well, if they happen.

Domestically, we’ll be keeping our eyes on the interest rates, but those will be aligned globally. If the Fed does cut rates more aggressively (as it did in November), we might see some relative returns in South Africa as a constructive outlook.

The focus in South Africa will be on the GNU, the energy situation, and the overall political landscape. And in that respect, the sentiment is positive for the country and the rand. Although we started 2024 on the back foot, by the end of the year we had moved from R19,25/USD down to R18 levels. We believe the new year will continue to be supportive of our local currency.