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March was a turbulent month for the South African Rand (ZAR), influenced by both global economic trends and local challenges. On the international front, the US Federal Reserve kept interest rates steady while inflation showed signs of easing, creating a ripple effect across emerging markets like South Africa. Domestically, weaker-than-expected manufacturing and mining figures, combined with a widening trade deficit, weighed on the currency. However, stronger-than-expected GDP growth and a surge in retail sales helped cushion the blow.

This report explores the key factors – both global and local – that shaped the Rand’s performance in March, and what they could mean for the months ahead.

Political headwinds and market resilience

In a significant political development, US President Donald Trump introduced policies directly affecting South Africa. These included suspending federal funding in response to South Africa’s land expropriation stance and its genocide case against Israel at the International Court of Justice. Despite this, the Rand held firm, appreciating by around 0.2% against the US Dollar on 26 March. This resilience highlights how broader economic factors – such as commodity prices, particularly gold – can buffer the impact of geopolitical tensions on the currency.

Mixed economic signals from South Africa

South Africa’s economic data in March painted a mixed picture. On the positive side:

  • GDP growth came in at 0.6% quarter-on-quarter and 0.9% year-on-year, pointing to a modest recovery.
  • Retail sales posted a strong rebound, providing a welcome boost to sentiment.

However, challenges remain:

  • Consumer confidence dropped sharply to -20, and business sentiment stayed weak.
  • Inflation edged up, with core inflation at 3.4% YoY.
  • Interest rates were held steady at 7.5% by the South African Reserve Bank.
  • The trade balance underperformed, and while the current account deficit narrowed, it remained in negative territory.

These domestic factors, combined with external pressures, contributed to ongoing volatility in the Rand.

Global developments: UK and US trends

In the UK, March’s economic data offered a mixed outlook:

  • GDP contracted by 0.1% in January.
  • Industrial and manufacturing output declined.
  • Inflation eased to 2.8% YoY, though core inflation stayed elevated at 3.5%.
  • Retail sales were surprisingly strong, and consumer confidence saw a slight improvement.
  • The Bank of England kept interest rates at 4.5%, signalling a cautious stance as growth falters.

In the US, the economy showed strength, but with some conflicting signals for monetary policy:

  • Inflation continued to moderate, with CPI at 2.8% YoY, though core PCE rose 0.4% MoM.
  • Labour market remained robust, with 151,000 new non-farm payroll jobs, though unemployment inched up to 4.1%.
  • Retail sales growth slowed, and consumer sentiment dropped sharply.
  • The Federal Reserve kept rates at 4.5%, maintaining a watchful approach.

Strong US economic data and the trade tensions introduced by President Trump have added further uncertainty for emerging markets, contributing to currency volatility – including a choppy end to the month for the ZAR.

What lies ahead for the Rand?

Looking forward, global trends, especially in the US, are likely to play a major role in the Rand’s trajectory. A strong US economy and persistent inflation could lead the Federal Reserve to keep interest rates elevated for longer, strengthening the US Dollar and putting pressure on emerging market currencies. Capital outflows from South Africa could accelerate in this environment.

In contrast, if US inflation softens and the Fed adopts a more dovish stance, risk appetite could improve, providing the Rand with some breathing room. Meanwhile, mixed UK data is likely to have limited impact, though general risk sentiment across developed markets will remain a factor to watch.

In short, the ZAR faces continued headwinds – but also opportunities – in an unpredictable global economic landscape.

By the numbers: How the Rand performed

At the start of March, the South African Rand traded at R18.60 to the US Dollar, R23.29 to the British Pound, and R19.37 to the Euro. As of the latest update, it stands at R18.87 against the Dollar, R24.82 against the Pound, and R20.75 against the Euro.

These shifts highlight the Rand’s ongoing sensitivity to both domestic and global events. Political decisions, economic data, and international developments continue to play a major role in shaping the currency’s movement.

A note from our Head of FX Dealing

The South African Rand (ZAR) experienced sharp losses over the past week, falling 4.2% against the British Pound and 3.82% against the US Dollar. This drop reflects growing political uncertainty within the Government of National Unity (GNU), as tensions between the ANC and DA continue to escalate.

The situation worsened after the DA opposed the national Budget, prompting ANC leaders to question the DA’s role in the coalition. The DA has also filed legal action challenging both the 0.5% VAT increase and the budget approval process, adding to the friction.

Markets reacted swiftly. The Rand weakened, and bond yields rose as investor confidence dipped. While disagreements within the GNU aren’t new, this marks the first time ANC leaders have expressed open hostility toward their coalition partner. Finance Minister Enoch Godongwana criticised the DA for trying to remain in government while rejecting its fiscal policies.

Compounding the pressure, US President Donald Trump announced a 30% tariff on South African imports, citing concerns about the country’s political and economic direction. His comments about “bad things” happening in South Africa have further shaken investor sentiment.

With political instability at home and rising trade tensions abroad, South Africa faces a period of heightened uncertainty – and the future of the GNU remains in serious doubt.

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