Very few matters stimulate more investment related conversations than discussions around the South African Rand / US Dollar exchange rate. Individuals wanting to bring funds into South Africa and exporters, hope for a weak Rand. Whilst those wanting to diversify their investment portfolio offshore and importers would prefer something on the stronger side. Views about the currency are often driven by sentiment and emotion. Here are the facts as to what happened during 2021.
The ZAR/USD began the year at 14,48, before rising to 15,50 on 12th January 2021.
It then proceeded to strengthen over the next four months and was at its strongest against the greenback on 7th June 2021., weighing in at 13,42.
The Rand then weakened for the rest of the year and closed off at just a smidgeon under 16 to the USD.
What can we learn from the experience of 2021 insofar as the currency is concerned?
- Our South African currency is volatile and is difficult to predict over the short term.
- The Rand is not a one way bet! Over the short and medium term, it can strengthen as well as weaken.
- Over the long term the Rand will weaken in line with the inflation differential between South Africa and its major trading partners, which is about 6% per annum.
- The ZAR / USD is an exchange rate between two currencies. Economic factors in both countries will affect this exchange rate. A weak USD will lead to a stronger Rand, regardless of the underlying state of the South African economy.
- Don’t try to be too clever, only with hindsight can you know that the 7th of June was the day in 2021 to take your funds offshore.
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