South Africa faces a pivotal week with significant fiscal and geopolitical developments. The third budget iteration, which will be tabled on Wednesday, is expected to be significantly different from previous versions. Specifically, it will avoid a VAT increase and target R75 billion in savings over three years by curbing wasteful expenditure. This requires approximately R25 billion annually, a modest 1% of the R2.4 trillion total expenditure. However, with 80% of the budget allocated to healthcare, education, and social security—areas resistant to cuts—and an underfunded military alongside a substantial infrastructure spending backlog, achieving these savings poses challenges.

The budget’s focus on fiscal reform could foster sustainable rebalancing, bolstered by access to deep domestic markets and reform momentum, as noted by S&P Global Ratings on Friday . S&P reaffirmed South Africa’s BB- credit rating with a positive outlook, citing policy continuity within the GNU despite internal disagreements. However, it lowered its GDP growth forecast to 1.3% for 2025, expecting 1.5% over the next three years, with Operation Vulindlela supporting growth but US tariffs posing risks.

Separately, President Ramaphosa’s visit to the US this week to meet President Trump is also critical amid strained relations. Key issues include South Africa’s race-based policies, geopolitical alignments with Russia and Palestine, and actions against Israel at the ICC. With US tariffs, withdrawn HIV/AIDS funding, and asylum offers to white South Africans, the meeting aims to avert further sanctions and foster constructive dialogue.

ZAR Markets

While ZAR traders have a busy week to look forward to due to President Ramaphosa’s meeting with President Trump and the third attempt at tabling a budget, they will also need to keep an eye on external developments. A US ratings downgrade by Moody’s over the weekend amid concerns that the Trump administration’s tax-cut bill, currently making its way through Congress, will add to the US’s unsustainable debt pile has driven US Treasury yields higher at the start of the week. Investors will need to navigate whether this detracts from higher-yielding assets or whether it drives more “sell US” sentiment to the detriment of the dollar. For now, the USD-ZAR is treading water just above the 18-handle, trading with a slight ZAR-bullish tilt after gapping higher over the weekend.

Global FX Markets

The U.S. dollar fell to a one-week low against the yen due to a surprise downgrade of the U.S. credit rating by Moody’s, citing concerns over the $36 trillion national debt, and ongoing trade friction concerns. This followed four weeks of dollar gains driven by optimism about U.S. trade deals and easing tensions with China. The dollar dropped 0.6% to 144.80 yen, while the euro rose 0.3% to $1.1199. Despite the downgrade, some analysts suggest it may not significantly impact the dollar due to its slow progression. U.S. Treasury Secretary Scott Bessent indicated potential tariffs on trading partners, though trade talks with the EU and a deal with Britain provided some optimism. The dollar also weakened against the Swiss franc and sterling. Meanwhile, the Australian dollar rose slightly to $0.6413 ahead of an expected Reserve Bank of Australia quarter-point rate cut, with markets focused on the bank’s guidance amid global risks and strong local employment data. New Zealand’s kiwi dollar gained 0.2% to $0.5890.