Everything from media headlines to coffee shop discussions have been dominated by the Rand’s recent surge against the world’s major currencies, and everyone seems to have an opinion. From “It’s dollar weakness, not Rand strength!”, to “The Rand will hit R11 to the dollar – just watch!”, and “Get your money offshore while you still can!”, the chattering-class theories are endless…

But what have been the REAL factors behind our currency’s recent rally? It comes down to a few…

1. Yes, the US Dollar has traded weaker against many of the world’s currencies – the Rand included. Driven by record-low interest rates, accommodative monetary policy and quantitative easing (also called “printing money”) have put the once-mighty Dollar on the back foot in the short-term. But these policies are aimed at supporting recovery in the world’s largest economy and, as Warren Buffett famously once said, “Never bet against America!”
2. SARS have been collecting more money than previously anticipated and the budgeted-for projections on revenue collection have been exceeded. This means our government will need to borrow less money in order to fund policies and spending. While this points to a possibly stronger underlying economy (remember that improved tax collection can only come from greater efficiency in the tax-collection system, or from people and companies earning more and therefore paying more tax), the spill-over the effects of this are indeed positive.
3. South Africa has been importing a lot less and exporting a lot more – and our dominant exports (i.e. resources) have been exported abroad at higher prices. The country’s Balance of Payments have been largely favourable and with exports (foreigners having to buy Rands to pay for these) being greater than imports (which we then have to pay for in Dollars, Pounds, and Euros), pressure on the Rand has been eased.

Taking all of the above into consideration, we are enjoying a currency trading at levels not seen for many years, but while the country’s ‘bank account’ is looking strong our ‘balance sheet’ is nevertheless still weak:

• high unemployment coupled with low labour-force participation
• record high government debt to GDP
• regressive government policy
• slow growth.

Without an improvement in these it is likely the Rand will struggle to maintain the recent levels over the medium- to long-term.

So the next time you’re at a socially distant Sunday braai and someone starts waxing lyrical on the Rand, you’ll have the tangible knowledge of just what has been behind the recent surge!

Wishing you a safe, warm, and successful week ahead!

Steve Crouse
Chief Investment Officer and Senior Advisor