What lies ahead for the South African rand in 2021?

The South African rand has been experiencing significant volatility in the first weeks of 2021, with sharp movements that have caught many off guard. The currency has seen pressure from both global and local factors, leading to big losses and trading at about 5 percent down compared to last year. Bianca Botes, Executive Director at Peregrine Treasury Solutions, highlighted the key drivers behind the recent volatility in a recent interview with CNBC Africa. One of the major factors affecting the rand's performance is a bounce in the dollar, which has added pressure on the local currency. Additionally, local issues such as the handling of the coronavirus pandemic, lockdown measures, and upcoming budget speech in February are impacting the rand's movements. Botes emphasized that while global liquidity and pro-risk asset environment have supported the rand, local fundamental aspects are increasingly becoming important. As Botes discussed the valuation of the rand, she expressed agreement with the sentiment shared by Martin Akman from Citadel, stating that the rand should be trading closer to the $16.50 mark. She attributed the rand's overvaluation to the substantial liquidity in the market, historically low yields, and global stimulus measures. Looking ahead, Botes predicted that in the short to medium term, the rand is likely to head towards the $16 mark, with potential further weakening towards $18 by the end of the year. When considering the impact of the weaker dollar due to potential additional stimulus in the US under President-elect Joe Biden, Botes pointed out that while the dollar has been under pressure, South Africa faces its own economic challenges. The country's risk factors, including a potential sovereign debt crisis, may continue to weigh on the rand's value compared to its peers. Botes warned that without a turnaround in South Africa's economic growth and fiscal situation, the outlook for the rand remains bleak. In conclusion, the South African rand is navigating through a tumultuous period marked by heightened volatility and external pressures. While global factors such as the weaker dollar and stimulus measures play a role in shaping the rand's performance, local issues are increasingly coming to the forefront. Investors and analysts are closely monitoring developments in South Africa's economy and political landscape to gauge the future trajectory of the rand.