South African Rand strengthens as Fed rate cuts loom
On Monday, September 15, the South African rand reached its strongest level against the U.S. dollar since middle November last year at 17.35/$. This was driven by the anticipated Federal Reserve rate cut and strong foreign investment inflows.
Expectations of lower U.S. interest rates encouraged investors to allocate funds into emerging market bonds, including South Africa’s. According to Bloomberg, the country recorded a significant foreign capital inflow, with net bond purchases amounting to 41.3 billion rand.
Daily chart of the South African Rand against the US Dollar. Source: Trading View
In addition to the inflows, South Africa’s trade balance improved notably in Q2 and in July, despite the introduction of steep 25% tariffs on auto exports to the U.S. starting in April.
Auto exports from South Africa in the first half of 2025 were substantially higher than during the same period in 2024. While the 25% tariff caused shipments of autos to the U.S. to fall 82% YoY in H1 2025, global South African auto exports rose 7.9% YoY, supporting overall export growth in Q2 2025.
Impact of U.S. Tariffs Overstated
These results do not yet account for the additional 30% U.S. tariff on South African exports, which took effect in early August. However, a full halt in U.S. shipments is unlikely, as about 70% of exports consist of metals, minerals, or related products, nearly half of which are exempt from American tariffs.
Moreover, exports to the U.S. represent only 7% of South Africa’s total exports, said Annabel Bishop, Chief Economist at Investec. According to her, given the limited impact of U.S. tariffs on auto exports this year, South Africa’s GDP growth could come in slightly above 1.0% YoY rather than slightly below, if current conditions hold.
As we wrote, South African rand weakens as dollar gains ahead of U.S. market return
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