USD/ZAR: Top reasons the South African rand is rising

The South African rand had a strong performance in August, even as the US implemented tariffs against the country. The USD/ZAR exchange rate tumbled to a low of 17.4, its lowest level since November 2024, and 12.6% from its highest level this month. 

Why the South African rand has surged

The USD/ZAR exchange rate retreated as the coalition government between the ANC and the Democratic Alliance held strong one year after its formation. The administration is carrying out some of the much-needed reforms that will stabilize the economy and its key sectors. 

Further, the rand has jumped as investors downplay the impact of Donald Trump’s tariffs. Trump implemented tariffs of about 30% on most goods coming from the country. These tariffs are substantial since the US is one of its biggest market. 

Analysts and industry groups warn that the tariffs will have a major impact on the economy, with job losses being in the thousands. Also, the potential pivot to Asian countries will likely take time.

The South African rand strength is a sign that investors expect the economy will maintain its resilience over time. Some of the analysts cite the rising commodity prices, like gold and platinum. 

The USD/ZAR price also reacted to the carry trade opportunity, where investors borrow from a country with a low interest rate and invest in one with a higher yield. While the South African central bank has cut rates recently, the benchmark rate remained much higher than that in the US. In a note, an analyst said:

“Data points to good inflows into the rand, and other higher-carry currencies, funded either from Asia or the US dollar itself. There’s space for the currency to continue to do well into year-end.”

Additionally, the ongoing South African stock market rally has contributed to the ongoing rand jump as foreign investors buy the rally. The closely watched JSE Top 40 Index, which tracks the largest companies in the country, peaked at ZAR 94,000, up nearly 30% from the year-to-date low. 

JSE Top 40 Index chart | Source: TradingView The weaker US dollar index has also contributed to the ongoing USD/ZAR performance. Data shows that the US dollar index was trading at $97, down sharply from the year-to-date high of $110. 

The US dollar index may continue falling now that the Federal Reserve has hinted that it will cut interest rates. In a statement at the Economic Club of Miami, Governor Cristopher Waller said:

“With underlying inflation close to 2%, market-based measures of longer-term inflation expectations firmly anchored, and the chances of an undesirable weakening in the labor market increased, proper risk management means the FOMC should be cutting the policy rate now,”

USD/ZAR technical analysis

The daily timeframe chart shows that the USD/ZAR exchange rate has been in a downward trend in the past few days. It has dropped below all moving averages, a sign that bears are in control. 

The pair has formed a head-and-shoulders pattern, a common bearish sign. Therefore, it will likely continue falling as sellers target the key support at 17.00. Such a drop would mean a 3.9% drop from the current level.

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