What’s Driving the Rand’s
Value in 2022?


Chris Paizis

Head of Corporate FX and
International Banking


High inflation and supply chain constraints are shaping currency prices around the world. What is the outlook for emerging market currencies like the rand?

The early months of 2022 have seen emerging market economies dominating the news headlines – from Russia’s war in Ukraine to China’s new COVID-19 lockdowns and India’s spike in infections. Combine that with the ongoing global supply challenges and high inflation rates in developed economies like the United States and you have – as in 2020 and 2021 – a storm of currency disruption. What does this all mean for the rand, and what is Absa’s view on the outlook for the South African currency for the rest of the year?

“The rand started the year positively,” says Chris Paizis, Head of Corporate FX and International Banking at Absa Group. “Being largely a commodity-driven currency, it benefited from events elsewhere. We started 2022 with rampant global inflation – rates in the United States and Europe are north of 7% – and that situation was only exacerbated by Russia’s actions in Ukraine. The war is causing havoc with supply chains, input prices and so on. I can’t think of a single client that hasn’t been affected by the crisis.”

It all points to a shake-up of the global economy, driven by factors that had been bubbling up even before the first Russian tanks crossed the Ukrainian border. “Input costs were also starting to rise last year,” says Paizis. “The US is releasing oil reserves as a form of crisis management, but that can’t last indefinitely. So I think we’re going to settle into a new normal of different supply sources and higher input costs – and a different set of costs, too, as technology shifts.”

The rand’s fortunes in 2022

While Russia’s invasion of Ukraine could certainly have an impact on emerging market (EM) currencies (including, of course, the South African rand), Paizis suggests that developed economies may have more to worry about. “The perception of risk-on and risk-off is different during wartime,” he says. “Who has the most to lose in this crisis? It’s Europe and the US; not South Africa or Brazil. For that reason, I think there may still be positive trends in emerging currencies like the rand and the real, despite the recent reversal we have seen, specifically in the rand’s value.”

In South Africa, the currency enjoyed a period of strength in early 2022 based on high commodity prices and a different view of risk-on and risk-off. However, events in April showed just how vulnerable the rand remains to both internal and external shocks.

“The onset of increased load-shedding and the flooding disaster in KwaZulu-Natal, as well as some large transactions in the market, caused a significant reversal in the rand’s fortunes, which may or may not be short-term in nature,” says Paizis. “Unpredictable events like the KZN floods knock business confidence. Coupled with a slight reversal in commodity prices, it showed how vulnerable the currency can be.”

Capitalising on the commodity boom

Indeed, commodity prices were booming in early 2022 as economies recovered from the COVID-19 pandemic. This should signal good news for commodity-heavy currencies like the South African rand and Brazilian real; however, the challenge remains in getting those goods to market.

“The situation in KZN was certainly not expected, and that will have an impact on South Africa’s key ports and infrastructure,” Paizis says. “That will negatively affect the local provincial economy, and the national economy as well. Although we had high commodity prices, our ability to export those commodities is no longer obvious. In Nigeria, too, the rising oil price is a big win for oil exporters – provided they can get their oil to market, which is not always an obvious outcome.”

For other African economies the outlook is similarly unclear – especially in cases where there are import dependencies for basic foodstuffs out of places like Ukraine and Russia. For example, Kenya (whose chief exports are tea and flowers) is not as well placed to capitalise on the commodities boom as oil exporters like Nigeria or Angola are.

“There are pockets of value in the current crisis,” says Paizis. “How you capitalise on it will determine the long-term value of your currency.”

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Chris Paizis

Head of Corporate FX and International Banking

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