In the face of ongoing global economic and political instability, the rand has surprisingly performed well.
But what’s behind this performance and is it sustainable?
The rand’s strength is part of a global trend. Since the start of the year, many currencies, including most emerging market (EM) currencies have been doing better against the US dollar, and much of this can be attributed to what’s known as a ‘weak dollar story’.
Global investors have been adjusting their expectations around US monetary policy amid heightened uncertainty about the strength of the US economy, which has caused the dollar to soften.
But while the rand looks strong, it’s important to understand that this isn’t necessarily a reflection of SA’s economic health.
In fact, SA’s risk premium has been climbing steadily since mid-December and recent surges in 10-year bond yields signal that investors remain cautious. SA’s credit default swap spread – a measure of sovereign default risk – has also increased over this period (although it remains below pre-government of national unity highs).
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