The rand lottery: Betting on more strength

Is 2025 the rand’s year? Bank of America reckons it’s the most undervalued emerging-market currency, and that it’s time the dollar falls from its giddy heights.
3 mins read

When market pundits do their currency forecasts – especially for the rand – it’s very much like playing the Lotto. The odds of getting all the numbers right are extremely slim. 

Yet the bets are on that the rand can finally do it this year and strengthen against the dollar, which would snap a seven-year losing streak.  

The rand looked as if it was going to be the world’s best-performing emerging-market currency in 2024 until a terrible December – when trading volumes are typically thin and any moves are exaggerated – erased its gains, and it ended the year in decline. 

So far, so good, however. The currency is up about 2.2% against the dollar in 2025, closing at R18.40/$ on Friday, according to ThinkMarkets data.  

Bank of America (BofA), the world’s second-biggest bank, has identified the rand as the most “undervalued” emerging-market currency in its “universe” and reckons it has the potential to rally to R17.50/$ by year-end.  

That’s largely contingent on a decline in the dollar, but because of the local currency’s already-low valuation, the rand should be the biggest beneficiary of any dollar fall, Mikhail Liluashvili, Eastern Europe, Middle East and Africa local markets strategist for BofA, told reporters on a call last week.  

According to BofA, most investors it engages with are pessimistic about emerging-market currencies (EMFX). This acts as a good “contrarian indicator”, Liluashvili said, adding that many of them also don’t hold much rand in their portfolios, which would work in the currency’s favour. “If there is a positive surprise, even if it is a small [surprise], EMFX tends to appreciate,” he said. 

Liluashvili’s colleague, G10 FX strategist Michalis Rousakis explained that the valuation of the dollar is at “extreme levels”, sitting at “multi-decade highs” by some measures, with depreciation in the currency only expected to set in from the second half of the year. 

Growth in the world’s largest economy will continue to remain strong in 2025 at 2.4%-2.7%, with no more interest rate cuts from the Federal Reserve because inflation will probably remain “well above target”, he said.  

In South Africa’s favour 

Many local factors should count in the rand’s favour, Tatonga Rusike, BofA’s Sub-Saharan Africa economist, said. This includes a stable government of national unity (GNU), “despite public frictions”, and an improvement in economic growth to about 1.6% this year. 

“We do see improvements coming from reduced power cuts or no load-shedding, you could say, and then also the GNU confidence turning into domestic investment along with improving consumption, helping to place growth on a higher path,” he said. “Growth reforms as well will also help with stimulating domestic investment, particularly in the logistics sector.” 

South Africa’s inflation rate will probably remain within the central bank’s 3%-6% target range, but, due to global uncertainty and its potential impact on prices, the monetary policy committee will probably hold off on any further interest rate cuts beyond March.  

Rusike was also positive that South Africa’s hosting of the G20, the first time an African nation has led the forum, will allow the GNU to adjust some of its foreign-policy positions, such as those on Russia and Israel, and smooth relations with the US, to “avoid any negative penalties”. 

Annabel Bishop, chief economist at Investec, forecasts the rand averaging R17.90/$ in the fourth quarter of 2025 as her base-case scenario. This assumes modest economic growth, gradually approaching 3% over the next five years, minimal expropriation without compensation, no nationalisation, and a measured transition to renewable energy to mitigate climate change impacts. 

The Trump gamble 

As Currency reported last week, much also hinges on US President Donald Trump’s “America-first” policies, which would entail tougher trade policies and tax cuts, to name two.  

“There’s lots of uncertainty around Trump’s policies; were they just empty election promises?” asks Old Mutual chief economist Johann Els. “The dollar has reacted more than what it should have [to his election]. So, I think the dollar will come back a little bit. Perhaps we’ve seen some of that already.” 

That was clear in last week’s rand rally, after the Republican leader eased some fears of tough trade tariffs against China, South Africa’s top trading partner.  

Perhaps comparing currency forecasts to the National Lottery is a little extreme; ChatGPT calculates that there’s a one in 20.36-million chance of winning the jackpot, a one in 42.38-million possibility of striking the PowerBall, and one in 376,992 likelihood of matching the five numbers selected from a pool of 36 in the Daily Lotto. 

Yet, bitter experience has shown that the consensus data for the rand is almost always out (far out).   

Last year, Els estimated the rand could briefly trade between R13-R14/$, as long as Trump didn’t win. Now, he’s looking for the currency to make a short-term move to trade between R15-R16/$ during the year, and end 2025 at R16.80/$. Many of the stars were aligned for it to potentially get there last year, even though he was an outlier. 

“Currencies overreact significantly, and I think the rand can strengthen markedly,” Els tells Currency in a message; “not as much as before Trump’s win, but still because it’s hugely undervalued. And, of course, then, you know, to put a forecast …” 

That’s where the WhatsApp message cut off. I can only guess what he was going to say next. As any FX strategist would tell you. 

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Vernon Wessels

With more than 20 years navigating global markets and billion-dollar bond deals, Vernon is a financial journalism heavyweight. As Bloomberg’s ex-South African bureau chief, he spearheaded African market coverage and mentored the next generation of finance trailblazers.

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