South Africa’s rand traded slightly weaker on Wednesday as a rebound in the US dollar weighed on emerging market currencies, while data showed a sharp contraction in domestic business activity at the end of last year.
In early trade, the rand was quoted at 16.38 to the dollar, around 0.2 percent weaker than its previous close, as investors digested fresh economic signals and positioned ahead of key global data.
The currency’s softness came as the dollar recovered some ground against a basket of major currencies, reducing appetite for riskier assets such as emerging market currencies, traders said.
Adding to pressure on the rand, South Africa’s Purchasing Managers’ Index (PMI) showed a deterioration in business conditions in December, signalling ongoing strain in the country’s private sector.
The S&P Global PMI fell to 47.7 in December, down from 49.0 in November, marking the steepest contraction in business activity since January 2025. A reading below 50 indicates a contraction in activity.
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According to the survey, weaker demand weighed heavily on output, while firms reduced purchases and inventories in response to subdued sales and ongoing cost pressures. Respondents also cited persistent concerns over electricity supply, logistics bottlenecks and fragile consumer confidence.
The PMI data suggest that South Africa’s economy ended 2025 on a weak footing, following a year marked by sluggish growth, high interest rates and structural constraints that have continued to dampen investment and spending.
“The December reading points to a challenging start to the year for the private sector,” analysts said, noting that demand conditions remain fragile despite some easing in inflation pressures late last year.
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South Africa’s central bank has kept interest rates at elevated levels in an effort to anchor inflation expectations, a stance that has provided some support to the rand but has also weighed on economic activity.
Inflation has moderated from earlier peaks, but remains vulnerable to global oil price movements and currency volatility. Any sustained weakening of the rand could feed back into higher import costs, complicating the monetary policy outlook.
Global factors also remain a key driver of the currency. The rand is highly sensitive to shifts in US monetary policy expectations, commodity prices and broader risk sentiment.
The dollar’s rebound on Wednesday followed recent gains in US Treasury yields, as markets reassessed the outlook for interest rate cuts by the Federal Reserve. A stronger dollar typically pressures emerging market currencies by making dollar-denominated assets more attractive.
Investors are also closely watching developments in China, South Africa’s largest trading partner, where uneven economic recovery has weighed on demand for commodities, a key source of export revenue for Africa’s most industrialised economy.
Despite the weaker start to the day, some analysts said the rand remains relatively resilient compared with other emerging market currencies, supported by South Africa’s deep and liquid financial markets and its status as a proxy for broader emerging market risk.
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However, domestic challenges continue to cap gains. Power shortages, infrastructure constraints and concerns over fiscal sustainability remain key risks, while upcoming political and policy decisions could add to volatility.
South Africa’s economy has struggled to regain momentum following the pandemic, with growth forecasts remaining modest. The government has pledged reforms to boost infrastructure investment, improve energy security and revive growth, but progress has been uneven.
Markets are expected to remain sensitive to upcoming global economic data and central bank signals, with traders cautious about taking large positions early in the year.
For now, the combination of a firmer dollar and weak domestic data is likely to keep the rand under pressure, analysts said, as investors await clearer signals on both the global and local economic outlook.
