The South African rand (ZAR) could be on track for significant strengthening by 2026, according to new analysis from Bank of America (BofA), drawing parallels with the currency’s 2002-2003 rally.
BofA strategists note historical patterns showing a strong correlation between the ZAR and the Australian dollar (AUD) in real terms, with a correlation coefficient of 0.84 for purchasing power parity gaps with the USD. This relationship, which proved robust during the rally of the early 2000s, again signals potential ZAR strengthening amid rising commodity prices.
The bank’s analysis points to a significant divergence between the ZAR and AUD, despite their historical correlation, attributing this gap to years of low investor confidence in South Africa despite improving fundamentals. BofA forecasts the AUD exchange rate at 0.68 by the end of 2026, which would support ZAR appreciation.
Tatonga Rusike, BofA’s chief Sub-Saharan Africa economist, states that “South Africa is in a good position,” while the bank’s EEMEA FI and FX strategist, Mikheil Liluashvili, forecasts USDZAR at 16.50 by the end of 2026. The report suggests potential for further appreciation, projecting that if the current gap were to halve, USDZAR could reach 13.75.
BofA highlights potential risks to this forecast, including the political situation in South Africa in 2027 and the possibility of a decline in commodity prices, although the latter is not considered a baseline scenario. South Africa lost its investment-grade rating in 2017, but BofA suggests that the current gap appears too wide given the improving outlook.