Updated on January 21, 2024
Discover the latest updates and comprehensive details on the possibility of the Rand reaching R20.50 against the Dollar in 2024, along with strategies on how to capitalize on this potential opportunity.
Potential for Rand to Reach R20.50 Against the Dollar in 2024
Ongoing domestic challenges and global uncertainties are likely to contribute to a further decline in South Africa’s rand in 2024. Despite this, investors have an opportunity to benefit by diversifying into offshore assets. Projections indicate that the rand may experience record lows in the coming months.
Forecasts suggest that the rand is poised to undergo significant pressure in 2024, with a potential reach of R20.50 to the US dollar. Anticipations lean towards a continued decline driven by internal economic challenges and external factors.
For a comprehensive understanding of the potential scenario “Rand Could Hit R20.50 to One Dollar in 2024: Here’s How to Get Benefit from It,” we encourage you to stay on our portal and delve into the details by continuing to read this post.
Rand Could Hit R20.50 to One Dollar: Reason
The anticipated downward trajectory of the rand is set to persist in the coming months, driven by a combination of internal structural economic challenges and global-scale external influences. HSBC analysts recently conveyed this insight to clients in a note, highlighting that the ongoing depreciation of the rand is closely tied to South Africa’s expanding current account deficit.
Over the past decade, the rand has experienced a devaluation against the US dollar in seven out of ten years. The last three years have been particularly challenging, witnessing a substantial 30% decline in the rand’s value against the US dollar. Various factors, including issues at Transnet, power outages, the impact of Covid, and the Financial Action Task Force’s greylisting, have contributed to this decline. In 2023 alone, the rand suffered an additional 11% loss due to ongoing power shedding and the nation’s economic challenges.
Expectations indicate that the rand will encounter significant volatility, fluctuating between R18.50/$ and R20.50/$. In the event of a global risk-off environment gaining momentum in the first half of 2024, there is a possibility that it may surpass R20.50/$.
Here’s How to Get benefit from It
Despite the associated risks, South Africans still have several promising investment opportunities in 2024, particularly in offshore assets poised to benefit from the rand’s decline.
Investors can anticipate returns of approximately 9% in South Africa, surpassing inflation rates. Currently, cash investments present attractive yields on offshore allocations ranging between 4% and 5% in terms of dollars. The prevailing adverse fiscal conditions have led markets to seek compensation for the inherent risk of investing in South Africa, resulting in local bonds delivering impressive returns.
In the current year, the local bond market is poised to yield returns that surpass inflation, with the potential for 10-year US Treasury yields to offer returns ranging between 4% and 5%. Should the US opt to lower interest rates, there is a possibility that capital gains could drive these yields to double-digit figures. Furthermore, the ongoing anticipated decline of the rand suggests that foreign investors stand to benefit from the depreciated local currency.
Final Discussion
The continued depreciation of the rand in 2024 is expected to enhance profits for foreign investors. For instance, if the rand depreciates by 8% against the dollar, portfolios exposed to the dollar would experience an additional 8% increase in value when translated to the rand. This amplifies the already significant gains from offshore markets, particularly the US.
Investors should factor in the tax consequences when calculating returns, as this may offset a portion of their gains. Multi-asset funds and tax-free savings and investment accounts can provide a shield against immediate tax requirements for investors.
Therefore, investors are advised to consider investing in offshore bonds after a thorough analysis of the situation and associated risks.
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