As economic and political dynamics shift in 2025, the South African (SA) rand could be in for a bumpy ride, but it might not be all downhill, says the author.
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As economic and political dynamics shift in 2025, the South African (SA) rand could be in for a bumpy ride, but it might not be all downhill.
Looking at the major market forces at play, here are five factors that will be decisive for the rand’s performance in the coming year:
1 SA’s fiscal discipline
All eyes were on the Budget that was postponed to the 12th of March. While the date has changed, the focal points will not change, and we will still be looking towards the government, to present a financial plan or budget that is supportive of growth and addresses much-needed structural reforms we need to solve problems within the local economy. As always, we will also look towards the government wage bill, state-owned entity spending and fiscal debt. How macroeconomic reforms play out in South Africa in the coming year will be a major factor influencing the strength of the rand.
2 Volatility in the commodity markets
Commodity-linked emerging market currencies such as the Brazilian real and South African rand (ZAR) will remain volatile and susceptible to weakness amid fluctuating oil and metals demand and dollar dynamics. Growing demand for commodities such as gold and coal and potentially diversifying trade partnerships could however cushion SA’s export earnings. Over the medium to long term, the rand takes its cues from commodity markets, and benefits from positive terms of trade.
3 Geopolitical shocks and increased trade tensions
Trade tensions between South Africa and the US, under the leadership of US President Donald Trump, will undoubtedly continue to impact the rand. The suspension of aid from the US to SA, coupled with the risk of an early suspension or non-renewal of the African Growth and Opportunity Act (Agoa), a vital trade programme between the US and sub-Saharan Africa set to expire in September 2025, and an antagonistic approach by the Trump administration towards the BRICS trade bloc, could contribute not only to rand volatility but also to a further weakening of the rand in 2025.
The success of South Africa's G20 presidency in 2025 and the future relevance of the G20 also hang in the balance, as the US refuses to participate while SA – and the global south – are trying to rally global leaders on pressing issues such as climate change, economic inequality, and technological disruption. These are the gravest issues of our time and need effective international cooperation to be addressed. The future cohesion and effectiveness of the G20 as a forum for global economic governance are now of serious concern. In addition, several countries are likely to enter into trade talks with new potential trading partners in 2025, which could cause current supply chains to diverge even further.
Geopolitical shocks or aggressive trade policies from the US could also trigger both a retaliatory global trade war, and renewed safe-haven demand from investors, who will likely move most of their money away from perceived ‘riskier’ emerging markets to ‘safer’ developed markets. Fluctuating and unpredictable US tariffs on imports will continue to threaten global supply chains and will have the greatest impacts on export-dependent economies such as SA. Sticky inflation, driven by elements such as a robust labour market in the US, higher energy prices, and higher prices brought on by trade wars and supply chain disruptions due to geopolitical conflict, also poses the risk of creating a stagflationary* global environment.
4 Interest rate interventions or non-interventions
While the US Federal Reserve (Fed) left interest rates unchanged in February, this delay tactic and Trump-era tariffs on fuel imports are likely to drive a short-term rally of the US dollar (USD). Moderating US growth, combined with narrowing interest rate gaps, and overvaluation pressures, are however likely to weaken the dollar towards the end of 2025.
The US Fed is still expected to cut once towards the second half of this year, versus more aggressive cuts from the likes of the European Union (EU) and the UK who are under pressure to stimulate growth, causing policy divergence.
Meanwhile, the South African Reserve Bank (SARB) cut the repo rate by 25 basis points (bps) for a third consecutive time at the end of January, bringing the benchmark rate to 7.5% - less than the 50-basis point cut expected by the market. The SARB is expected to maintain its conservative approach and will monitor inflation closely to assist in its decision-making process. We are also keeping a close eye on the potential change in the inflation target bracket.
5 Emerging market headwinds and tailwinds
When looking at headwinds, Emerging Market (EM) currencies, and specifically Asian currencies such as the Chinese yuan and Indian rupee, will be put under pressure by USD strength. The strength of the dollar will also put the rand under pressure. Higher US interest rates typically keep the dollar stronger for longer, which reduces the appeal of ‘riskier’ assets such as emerging market assets.
Looking at the possibility of tailwinds, however, the Chinese yuan could stabilise in 2025 thanks to interventions by the People’s Bank of China (PBOC) and regional trade pivots. Stimulus measures aimed to offset the Chinese property slump, in particular, may be supportive of EM growth and Chinese yuan stability, which will benefit its trading partners. The rand is an important emerging market currency, and given South Africa’s strong trade relations with China, which remains the second largest economy in the world and a major consumer of commodities, the better the Chinese economy does, the more they consume, and the better commodity-driven currencies such as the rand will perform.
Conclusion: What SA businesses can do to manage their risk
While it is clear that the world order is changing, and South Africa will face new geopolitical and economic challenges as its relationship with the US becomes more tense, there are some supportive factors that may offer a positive counterweight to these issues. This includes the SARB’s inflation targeting and increased global demand for commodities produced in SA.
In light of all of these factors, SA businesses need to adopt foreign exchange (forex) risk management strategies. This could include hedging tools, such as forward contracts** and options to lock in rates amid USD/ZAR volatility. Operational adjustments, such as diversifying suppliers and currencies, and leveraging nearshoring for supply chain resilience, could also help protect businesses from future shocks.
Finally, technology integrations, such as centralised treasury platforms for real-time exposure tracking and automated hedging, could become critical risk management tools for South African import-export businesses in 2025.
Bianca Botes, a director at foreign exchange experts Citadel Global.
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Bianca Botes is a director at Citadel Global.