The South African rand was trading near its strongest level in nearly three years on Thursday, buoyed by improving global risk sentiment after geopolitical tensions eased and safe-haven demand receded following a shift in tone from U.S. President Donald Trump.
At 1344 GMT, the rand traded at around 16.21 to the U.S. dollar, about 0.3 percent firmer than Wednesday’s close and close to its strongest level since August 2022, according to market data. The currency has gained steadily this week as investors rotated back into emerging market assets.
The rand’s recent strength has been driven largely by external factors rather than domestic developments. Global markets reacted positively after Trump retreated from threats to impose new tariffs on European partners and ruled out the use of force to acquire Greenland, comments that helped calm fears of escalating trade and geopolitical conflict.
Earlier in the week, concerns over U.S.-European tensions and protectionist rhetoric had fuelled demand for safe-haven assets such as gold, pushing prices to record highs. As those concerns eased, demand for riskier assets, including emerging market currencies, picked up, benefiting the rand.
“At the start of the week, Trump’s escalating stand-off with European countries sent gold to new highs and helped drive South Africa’s rand to a three-and-a-half-year high of approximately 16.29 per dollar,” Umkhulu Treasury said in a note. “As the rhetoric softened, risk appetite improved and the rand held onto its gains.”
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Global drivers outweigh domestic factors
Analysts said the rand’s performance reflects its sensitivity to shifts in global risk sentiment, given South Africa’s deep and liquid financial markets and its role as a proxy for emerging market risk.
“When global investors feel more comfortable taking risk, the rand is often one of the first currencies to benefit,” said a Johannesburg-based currency strategist. “This move is much more about the dollar weakening and global politics calming down than any sudden improvement in South Africa’s fundamentals.”
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The U.S. dollar index, which measures the greenback against a basket of major currencies, edged lower on Thursday, adding to pressure on the dollar and supporting emerging market currencies.
South Africa’s currency has also drawn support from relatively high domestic interest rates, which continue to offer attractive yields compared with developed markets. The South African Reserve Bank (SARB) has kept its benchmark rate elevated as it seeks to anchor inflation expectations, making rand-denominated assets appealing to carry-trade investors.
Domestic challenges remain
Despite the recent gains, economists cautioned that South Africa’s structural challenges remain a constraint on sustained currency appreciation. Weak economic growth, power supply constraints, high unemployment and fiscal pressures continue to weigh on investor confidence over the medium term.
South Africa’s economy expanded only modestly last year, with rolling power cuts and logistical bottlenecks hampering industrial output and exports. While electricity supply has stabilised somewhat in recent months, analysts say the recovery remains fragile.
“The rand can strengthen quickly when global conditions are supportive, but it can also reverse just as fast if risk sentiment turns,” said an economist at a major South African bank. “Local issues have not gone away, and that limits how far and how sustainably the currency can rally.”
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Eyes on U.S. policy signals
Looking ahead, investors are expected to closely monitor further signals from Washington on trade, foreign policy and interest rates, as well as upcoming U.S. economic data that could influence expectations for Federal Reserve policy.
Any renewed escalation in geopolitical tensions or signs that U.S. interest rates could remain higher for longer may revive demand for the dollar and safe-haven assets, potentially reversing recent gains in the rand.
For now, however, easing geopolitical anxiety and a softer dollar have allowed the South African currency to hover near levels last seen more than three years ago, offering some respite after a volatile period for
