Citadel’s forex risk trends for 2024

As substantial growth is predicted in the foreign exchange market for 2024 and beyond, the world is bracing for another tumultuous year, with risks mounting for forex clients. Bianca Botes, Global Director & Treasure Partner at Citadel, shared insights on the four forex risk trends for 2024 in an exclusive interview with CNBC Africa. One of the key themes discussed was the impact of geopolitical shifts and ongoing elections on the forex market. Bianca highlighted South Africa's changing geopolitical positioning, particularly in relation to its ties with Russia, China, and the United Arab Emirates. She emphasized the implications of aligning with more anti-Western trade partners, citing the risk premium imposed on the South African rand due to perceived associations with Russia. This shift in alliances could significantly influence investment flows and trade dynamics for South Africa, as markets closely monitor the country's strategic partnerships and sanctions-related risks. Moving on to the impact of elections on forex risk, Bianca pointed out that being an election year often leads to populist policies and budget priorities that may strain fiscal stability. With South Africa and several other countries heading to the polls in 2024, election-friendly budgets could prioritize unsustainable expenditures like National Health Insurance and social grants. The reluctance to address issues such as the wage bill and failing state-owned enterprises may deter foreign investors seeking financial and policy certainty. The structural weaknesses in South Africa's economy, including the debt burden, policy uncertainty, and unreliable public utilities, further compound the risks for currency and investment attractiveness. Foreign direct investment prospects hinge on the outcome of the elections and subsequent government policies to restore stability and stimulate economic growth. Bianca stressed the importance of addressing critical issues like electricity supply, transportation efficiency, and pro-growth policies to enhance South Africa's investment appeal in the global market. In terms of forex market projections for the rand in 2024, Bianca cautioned that the currency could face continued pressure amidst local and global challenges. While recent market movements have shown some resilience, factors like the upcoming Federal Reserve interest rate decision, Chinese stimulus measures, and commodity price trends will influence the rand's performance. The uncertainty surrounding the election outcomes, interest rate actions, and policy stability will contribute to forex volatility in the short to medium term. Despite potential rand weakness, the market anticipates some relief from Fed interest rate adjustments and external economic factors. The outlook for 2024 remains cautious, with a focus on mitigating forex risks through informed market analysis and prudent investment strategies. As South Africa navigates geopolitical shifts and election dynamics, proactive measures are essential to safeguarding forex positions and capitalizing on emerging opportunities.