South Africa’s rand is experiencing its longest winning streak in 13 years.
The currency, often viewed as a key indicator of emerging market trends, has gained for nine consecutive days, reaching its highest closing level in five weeks.
This marks its best performance against the dollar among 150 global currencies tracked by Bloomberg.
Investor confidence in South African assets has surged since a pro-business coalition took power two months ago, coinciding with an improvement in the country’s economic data.
Inflation has also been on the decline since February, easing the central bank’s need to maintain high interest rates.
Marek Drimal, a strategist at Societe Generale SA, suggests that the anticipated Federal Reserve rate cuts next month could create an opportunity for South African policymakers to follow suit.
“The one-off move higher in USD/ZAR during the market rout in early August offered investors a very good entry point to buy South African assets,” Drimal told Bloomberg.
The gains extend beyond the currency. South Africa’s government bonds denominated in rand have delivered total returns of 2.7% this month, outpacing the emerging-market benchmark, which has returned 1.5%.
However, the rand’s rally might encounter challenges as traders anticipate rate cuts in South Africa. Forward-rate agreements are pricing in at least a 50-basis-point reduction in rates this year.
“It’s unlikely the rand rally has still legs,” Drimal said.
For the rand to secure long-term, fundamental-driven gains, “delivering reforms aimed at structural improvements of the South Africa economy and growth potential is crucial,” he said.
