The US dollar’s bull run towards the end of 2024 was caused mainly by expectations of higher economic growth, following the Republican Party’s victory in the presidential election. US President Donald Trump has promised to follow a growth-enhancing macroeconomic policy approach, which is likely to include tax reductions and has already led to increased tariffs on imports, especially on neighbouring countries and China.

A stronger US economy may slow down the declining trend of inflation, which could limit the extent and regularity of further interest rate cuts by the Federal Reserve. Although the yield on 10-year US Treasury bonds has declined marginally from its recent high of almost 4.8%, it is more than 260 basis points higher than three years ago and, at a rate of 4.4% on February 24, remains attractive to fund managers around the globe.

US Treasury yields remain attractive

Prospects of US bond yields remaining at current levels, combined with the conflict in Ukraine and the Middle East, has caused fund managers to flock back to the US dollar. At the end of January, the US dollar index rose to above 108 for only the third time in more than three decades. As recently as September 2024, the so-called “Dixie” had dropped to 100 on the back of a fairly aggressive start to the rate-cutting cycle, but the election of Trump has, for now, put paid to prospects of dollar weakness.

It is no coincidence that the renewed strength of South Africa’s currency has occurred in the aftermath of last year’s parliamentary elections, which resulted in a historic shift to a coalition government. The upshot of enhanced domestic and international investor sentiment over South Africa’s post-election economic prospects is a belief that economic reforms aimed at fostering higher growth will gather pace, now that the DA is part of the national executive.

The DA boasts an impressive track record of sound public sector management at municipal and provincial level in the Western Cape. This expertise, combined with the declared intention of the Government of National Unity (GNU) to seek closer cooperation with the private sector in the repair, maintenance and expansion of the country’s infrastructure, has already prompted the World Bank to raise its 2025 GDP growth forecast for South Africa to 1.8%, from 1.3% previously.

Exports shine in 2024

Balance of payments stability lies at the heart of the remarkable resilience of the rand over the past twelve months. During 2024, South Africa recorded its eighth successive trade surplus, whilst the financial account of the balance of payments has been in surplus for eight successive quarters with an average net quarterly net inflow of almost R17 billion.

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Rand shows remarkable resilience in global currency market