Explainer — why the rand is a sitting and sinking duck

8 Apr 2025

Caught in the crosshairs of a turbulent stage of history, the rand is a duck that is both sitting and sinking.

The rand is currently a sitting duck with a double-barrel shotgun aimed at it from point-blank range. US President Donald Trump’s tariffs are loaded in one barrel, and the government of national unity’s (GNU) collapse is the shell in the other. And this duck has been sinking as a result.

The rand lost more than 3% of its value against the dollar last week in the wake of Trump’s “Liberation Day” tariff announcements that were calculated from a quackish formula based on America’s trade deficits.

Read more: Trump announces reciprocal tariffs – 30% for South Africa

The currency’s losses deepened on Monday, taking it to 19.66 to the dollar – within striking distance of its historic low of about 19.87/dlr, which was reached almost two years ago. Underscoring the volatility, the rand in early Tuesday trade was gyrating between 19.55 and 19.39/dlr.

How does this affect you?

When the rand swings wildly, it filters through to the prices you pay – from fuel at the pumps to groceries on the shelf. A weaker rand makes imports more expensive, which can push up inflation and erode your spending power. It also influences interest rates, as the Reserve Bank may hike rates to protect the currency, making credit and loans more costly. Whether you’re planning an overseas trip, paying off debt or just trying to budget for essentials, the rand’s roller coaster ride is more than just a headline – it hits your pocket directly.

Here are some reasons that the rand is particularly vulnerable and volatile at this turbulent confluence of domestic and global events.

Trump’s tariffs

For South Africa the magic number plucked from the ludicrous formula that was used is 30%.

Beyond the potential impact on South African exports to the world’s largest economy is the simple fact that Trump’s tariffs and his subsequent threats to hike them further in retaliation for retaliation – a vicious cycle known as a trade war – have roiled global financial markets, with trillions of dollars of wealth vaporised from stock exchanges worldwide.

The rand is particularly vulnerable to such mayhem because it has long been one of the most heavily traded and liquid currencies among what is known as “emerging markets”.

The rand is in some ways a proxy for emerging market sentiment, which makes it extremely volatile, rising and crashing with the changing tides of the global economy.

According to IG Bank, the USD/ZAR is the sixth-most-volatile match-up among currencies – and this makes the rand the most volatile emerging market currency in its dance with the dollar.

GNU snafu

The crumbling of the GNU over the Budget VAT spat is also undermining the rand.

Revealingly, the rand’s fall against the US dollar took place against the background of the dollar losing ground against other major currencies – a state of affairs that would usually prop up the rand vis-à-vis the greenback.

This domestic political development is a massive blow to sentiment – at a time when a stable government is needed to confront the many internal and external challenges that South Africa must now navigate.

Before the 2024 election, the rand and South Africa’s wider markets were on tenterhooks. Political uncertainty was heavily priced into South African assets, and the formation of the GNU significantly reduced the country’s risk profile as an investment destination.

Domestic political risk and uncertainty are now firmly back on the radar screens of investors looking at South African assets, rendering them toxic in the eyes of many.

At this stage, 20/dlr could be on the cards in the coming hours, days or weeks. DM

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