The South African rand extended its recent rally against a faltering US dollar on Thursday, buoyed by disappointing American economic indicators that have heightened expectations for a Federal Reserve interest rate cut in December.
The local currency, often a barometer for emerging market risk appetite, strengthened as investors digested softer-than-expected US data, including a mixed September jobs report that revealed a slowdown in hiring alongside rising unemployment. This has tipped the scales toward monetary easing by the Fed, with market-implied odds of a 25-basis-point cut now hovering near 85%, up sharply from 30% just a week ago.
At 4:09 PM SAST, the rand was trading at R17.1363 to the dollar, a modest 0.06% improvement from the previous close, according to Trading Economics data. This marks a continuation of the rand’s broader uptrend, with the unit gaining 0.10% over the past month and a robust 5.21% over the last 12 months against the greenback.
Like other risk-sensitive currencies, the rand’s movements are influenced by a blend of domestic factors—such as South Africa’s political stability and commodity prices—and global cues, particularly US policy shifts. Recent turbulence, including a brief government shutdown that delayed key economic releases, has amplified uncertainty, but the revival of data flows has only underscored vulnerabilities in the world’s largest economy.
The catalyst for today’s dollar weakness was the Bureau of Labor Statistics’ long-awaited September employment report, released earlier this week after being postponed by the shutdown. It showed a better-than-expected addition of 119,000 jobs, but this came with a higher unemployment rate and downward revisions to prior months’ figures, painting a picture of a labor market “slowing, not deteriorating,” as Cleveland Federal Reserve President noted. Inflation, meanwhile, has ticked up to a full percentage point above the Fed’s 2% target, creating a delicate balancing act between supporting growth and curbing price pressures.
Fed Chair Jerome Powell, facing a divided committee, has described recent cuts—including a 25-basis-point reduction in October to a range of 3.75%-4%—as “risk management” moves to preempt further employment softening. However, hawks on the board, including several regional presidents, argue for caution amid persistent inflation risks, while doves push for more easing. The Fed’s September projections had penciled in 75 basis points of cuts for the remainder of 2025, but upcoming data on retail spending, GDP, and November jobs could sway the December 17-18 meeting.
Analysts at J.P. Morgan Global Research anticipate two additional cuts this year and one in 2026, citing a resilient but decelerating US economy with real GDP growth at 1.6% annualized in the first half of 2025, down from 2.6% in late 2024. “The economy is still in decent shape overall,” said Michael Feroli, J.P. Morgan’s chief US economist, but downside risks to the labor market have become “a reality.”
For South Africa, a weaker dollar offers some relief amid domestic headwinds like subdued growth and fiscal strains. The rand’s recent low against the dollar was R17.0490 on November 14, with highs reaching R17.4535 earlier in the month. Forex strategists at OFX noted that while short-term volatility persists, the currency’s year-to-date resilience could support imports and ease imported inflation pressures.
Wall Street echoed the sentiment, closing higher on Wednesday as rate-cut bets lifted equities, with the S&P 500 up amid forecasts of robust holiday sales topping $1 trillion for the first time. The Fed’s Beige Book, released this week, had minimal impact on expectations, reinforcing a narrative of moderate expansion tempered by elevated uncertainties.
As markets await further US indicators, including core capital goods orders that beat consensus in September, the rand’s trajectory will hinge on whether the Fed opts for easing or restraint. “This is not just about one data point—it’s about the Fed’s path to neutral,” said Seema Shah, chief global strategist at Principal Asset Management. For now, the rand’s modest gains signal cautious optimism in a globally intertwined financial landscape.