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A budget-to-budget analysis of the rand

28 February 2022 Bianca Botes, Director at foreign exchange experts at Citadel Global

After another tumultuous year for the rand, it’s essential to look at the events surrounding key currency fluctuations when forecasting for the year ahead.

Citadel Global, the foreign exchange and treasury experts, have released their much-awaited annual analysis of the rand fluctuations between the 2021 National Budget Speech and the 2022 speech on 23rd February.

Bianca Botes, Director at Citadel Global, explains that it is not necessarily the big local events that weakened the rand as there are many global factors at play. As of 10th February, the rand was trading at 15.23 as investors look towards the upcoming National Budget Speech.

BIG MOMENTS THAT IMPACTED THE RAND

Please refer to the corresponding infographic – which is available for your use.

2021:
• 24 February 2021: rand takes the budget speech in its stride, trades at 14/$ as the dovish Fed overshadows local and economic woes
• 5 March 2021: rand slips significantly as dollar reaches a new three-month high, trades at R15,30/$
• 25 March 2021: The South African Reserve Bank (SARB) raises interest rates to combat higher inflation, the rand breaks above R15/$
• 16 April 2021: rand soars to R14,20/$ on the back of a soft dollar as the US Federal Reserve (Fed) puts inflation fears to bed, while the Chinese economy posts stellar economic growth figures bolstering the risk rally
• 3 June 2021: rand reaches new highs at R13,50/$ as vaccine optimism bolsters emerging market currencies, while the dollar remains subdued
• 13 July 2021: Violent looting and riots grip South Africa in what appears to be political retaliation for the arrest of former president Jacob Zuma. The rand starts to decline, reaching R14,73/$ a mere day later. The downward trend continues towards the end of July as the delta variant causes concern globally
• 20 August 2021: rand weakens to R15,20/$ after a month of rangebound trading on the back of Fed minutes indicating that asset tapering would commence soon.
• 30 August-2021: rand recovers below R15,00/$ as the Jackson Hole Economic Symposium reiterates that inflation is transitory. The rally continues to mid-September as the dollar remains subdued
• 20 September 2021: rand slips to R14,83/$ as the Fed hints at tapering quantitative easing (QE)
• 29 September 2021: the dollar index trades at an 11-month high as investors brace for monetary tightening by the Fed, the rand continues to retreat trading at R15,10/$
• 21 October 2021: rand and other commodity driven currencies soar on the back of the improved commodity process and trades at R14,42/$
• 1 November 2021: South Africans head to the polls for municipal elections but the rand is little impacted at R15,15/$ as focus remains on global events
• 18 November 2021: rand comes under significant pressure at R15,64/$ as the dollar tests multi-year highs. Turkey sets the tone for emerging markets by cutting interest rates by 1% as inflation tips 20%
• 24 November 2021: rand hits a new low for the year at R15,85/$ and further weakens to R16,12/$ two days later. The strong dollar, bolstered by the announcement that Jerome Powell will lead the Fed for the next 4 years, continues to damage emerging market currencies
• 10 December 2021: rand trades at R15,99/$ as the International Monetary Fund (IMF) warns of the potential effect of the omicron variant
• 30 December 2021: rand remains on the backfoot, trading at R15,92/$ as inflation, interest rates and the effect of the omicron variant continue to make headlines globally

2022:
• 4 January 2022: The rand begins the year on the backfoot, trading above R16,00/$ as interest rates are top of the agenda in the weeks ahead
• 18 January 2022: China Central Bank unexpectedly cuts interest rates as the Chinese economy shows signs of a slowdown, the rand trades at R15.43/$
• 26 January 2022: The rand trades rangebound at R15,43/$ after the Fed indicates interest rates could increase as soon as March this year to curb high inflation
• 4 February 2022: the rand trades stronger at R15,23/$ as the dollar weakens on the back of a hawkish Bank of England (BOE) and European Central Bank (ECB)
• 8 February- US 10 year treasury yields reaches highest levels since 2019, as markets expects more hawkish Fed. ZAR trades at R15.35/$18 February- ZAR demonstrates resilience, ignoring Russian/Ukraine tension to trade below R15.00 at R14.97
• 23 February: The reaction to the budget was rather subdued, ending the day at 15.08/$, following a “boring but safe”budget with no surprises

Quick Polls

QUESTION

South Africa went to Davos to pitch itself as an investor-friendly destination, then signed an Expropriation Act. What message does this send to global investors?

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