What is the Outlook for the Rand?

My colleague Bheki Mahlobo, who among other things serves as policy and economics editor at The Common Sense, forecast in 2025 that the rand would test R16.00 to the American dollar in 2026. Mahlobo argued that the main driver of this would be a weaker US dollar. He showed how after Donald Trump won his second term as US president in November 2024, the dollar index stood near 110, about 17.0% above its twenty-year average. By January of 2026, as Mahlobo had expected, the index had fallen 11.0% to 97.

In an article published by this newspaper last week Mahlobo listed the following as among the reasons for the dollar weakening:

• US interest rates have been cut by 175 basis points since September 2024, with 50 more basis points expected;
• The VIX index (which measures global risk and volatility) has fallen, meaning less demand for the dollar as a safe haven. Gold had also become a preferred safe haven, helped by faster central bank buying; and
• The dollar’s share of global foreign exchange reserves has fallen from 79.0% in 2001 to 57.9% in 2025 while global payments via the SWIFT system have shifted, from 160 dollars per 1 Chinese yuan a decade ago to 10 to 1 today.

Mahlobo argued that as a consequence of the dollar still holding around 5% above its 20-year average the rand may break towards R15.50 this year and even threaten the R15.20 level.

Our friend Rowland Brown, who is one of Southern Africa’s most exceptional analysts, and who runs Cirrus Capital in Windhoek in Namibia, was kind enough to send a note saying that the following factors should be stressed in understanding the dollar and implications for the rand.

Brown argues that the recent dollar weakness is not about the US losing global relevance but that it is driven by inflation expectations, which make US Treasuries unattractive at current yields.

Foreign firms previously recycled surplus dollars, earned from exports to the US, into US bonds and markets. However, rising US inflation risks means real yields on US Treasuries are now very low, reducing dollar demand. Given the parlous state of other traditional safe-haven economies, capital has rotated away from US fixed income into gold and other assets.

At the same time as that was occurring, South Africa offered very high real yields relative to the US. A tighter inflation outlook turned South African bonds into a global yield standout as a strengthening rand further boosted returns for bond investors. Gold and platinum group metals’ (PGMs’) prices have been a further major positive in terms of increasing demand for the rand, improving the current account balance, lifting tax revenue, and improving the fiscal outlook, with PGMs making up about half of mineral exports, which dominate total exports.

Brown argues that as US inflation stabilises, yields will rise, causing demand for Treasuries to return. Matched with strong US growth and an improving trade balance, as US firms raise exports, drawing dollars into America that must then be invested somewhere, those funds are likely to flow back into US Treasuries and equities later in the year, as a consequence of which dollar weakness should stabilise.

Here at The Common Sense we find the choice of Kevin Warsh, once considered one of the most prominent “inflation hawks” in modern monetary policy, as Fed chair very interesting in this regard. His reputation stemmed from his actions and statements during his 2006-to-2011 tenure as a Federal Reserve Governor, where he consistently prioritised price stability and warned against the potential inflationary risks of aggressive economic stimulus. Opinion is out on whether he is a genuinely “reinvented dove” or a “hawk in sheep’s clothing” – if it is the latter then the dollar is coming back.

Mahlobo argued that into the end of 2026, with local government elections in South Africa due, the political risk dial on the country may be turned up somewhat. Roughly a year after that vote Cyril Ramaphosa is expected to exit as leader of the African National Congress, again turning up the risk dial. Eighteen months later South Africa will hold its 2029 national election. What domestic political factors have aided the rand may themselves start to be dialled back into the end of this year.

On balance Brown’s outlook, like that of Mahlobo, is for a strong year for the rand, and South African assets driven by capital flows and commodities, but that US assets are likely to perform better in the second half of the year as inflation and yields settle. Beyond that, South Africa’s own domestic political and policy risk equation may move somewhat against the rand, further putting the brakes on its gains.