Why the Rand Hit R16.00 and What Could Keep it There

The rand’s strengthening to near R16.00 against the US dollar marks its strongest level since June 2022, and is exactly line with the forecast that Bheki Mahlobo, economics and policy editor at The Common Sense, made in this newspaper in December 2025.

At the time Mahlobo said, “I expect that the rand will test the R16.00 level in 2026.”

Mahlobo now says that the biggest shift driving the strength of the rand has come from a weaker American dollar. When Donald Trump won his second term as President of the United States (US) in November 2024, an index that measures the performance of the dollar stood near 110 points, which was about 17% stronger than its twenty-year average. By January this year, that index had slid by 11% to 97 points, therefore still sitting 6% above that average and hinting at further room to weaken.

The dollar has weakened for the following five reasons.

The first is that interest rates in the United States have been cut by 175 basis points since September 2024 with expectations of 50 additional basis points cuts. When rates are cut, demand for dollars reduces, with the effect of the price of the currency, or its value, diminishing.

The second reason is a fall of the VIX index. The VIX index is a measure of global market nervousness and a proxy for geopolitical and macroeconomic risk. When levels of risk are perceived to be high, investors look to park their money in traditional safe havens such as the US dollar. This increases demand for the dollar and increases the price of the dollar. When the index falls, investors develop an appetite to exit the dollar and buy alternative assets or currencies, with the effect that the dollar weakens.

The end of the war in Gaza, the prospects of the end of the war in Europe, the muted effects of the Trump administrations tariff policies, strong global trade numbers, an upward revision in global GDP numbers, and a downward revision in global inflation data explain the decline in the index.

The third reason why the dollar has weakened is that gold has become a preferred safe-haven asset to the dollar. Where investors seek to hedge against global volatility, they have tended to turn to gold, the price of which has been further inflated by accelerated central bank buying of gold.

The fourth reason is that the dollar’s dominance as the world’s reserve currency is slipping. Its share of global foreign exchange reserves has fallen from 79.0% in 2001 to 57.9% in 2025. A decade ago, there were 160 dollars moving across global payment systems for every one Chinese yuan; today, that ratio is 10 to 1. This slow but steady shift is reducing natural demand for the dollar, removing a key support of the currency.

The fifth reason is that the Trump administration understands the importance of allowing the currency to depreciate to an extent in order to boost the value of American exports, which would allow it to compete more effectively with some of its more global rivals, particularly with respect to the American manufacturing economy.

On the domestic South African side, the Government of National Unity (GNU), chiefly pragmatic fiscal and monetary policies, the removal from the Global Financial Taskforce Grey List, a stricter inflation target, a consistent trade surplus, and a marginally improved economic growth outlook have been effective in quieting investor fears about South Africa’s short-term economic stability, even as the rate of economic growth remains very low.

The intersection of the five dollar-related trends with the domestic South African political and economic trends are what explains the strengthening of the rand.

Mahlobo thinks that the domestic trends may continue through 2026 and that the dollar may give up another 5% in value, which means that the local currency may break through the R15.50 mark during the course of the year and could even threaten the R15.20 level.

That would be to the great benefit of South African consumers, given that the price of imported goods, and especially fuel, would come off significantly. The strengthening of the currency, however, poses a challenge to South African investors, given that the trend line for the rand has broken the once-safe decade-long bet that dollar buying was an effective investment strategy for South Africans seeking to hedge their country risk.

Into the longer-term horizon, South Africa faces the prospects of a local government election at the end of 2026 or early 2027, which may test the unity of the GNU. Roughly a year after that, Cyril Ramaphosa is expected to resign as leader of the African National Congress (ANC) with no clarity as to his successor. Eighteen months after that, South Africa will be heading into its next national government elections. The domestic political risk equation may therefore lift through 2027 and 2028, potentially stalling the current trend.

There is therefore a view in investor circles that current rand strength represents a buying opportunity for South Africans seeking to hedge their medium-term prospects into the country. However, into the longer term, should the unitary government hold and the ANC elect a pragmatic leader, the rand trend may persist, at which point Mahlobo thinks the currency may strengthen to what he calls “fair value”, which would be a level of between R12 and R13 to the American dollar.