An Empirical Analysis of the Impact of Global Risk Sentiment, Gold Prices, and Interest Rate Differentials on Exchange Rate Dynamics in South Africa

Lefatsa, Palesa Milliscent; Msomi, Simiso; Muguto, Hilary Tinotenda; Muguto, Lorraine; Muzindutsi, Paul-Francios

doi:10.3390/ijfs13030120

Open AccessArticle

An Empirical Analysis of the Impact of Global Risk Sentiment, Gold Prices, and Interest Rate Differentials on Exchange Rate Dynamics in South Africa

by

Palesa Milliscent Lefatsa

,

Simiso Msomi

^*

,

Hilary Tinotenda Muguto

,

Lorraine Muguto

and

Paul-Francios Muzindutsi

School of Commerce, College of Law & Management Studies, University of KwaZulu-Natal, Durban 3629, South Africa

^*

Author to whom correspondence should be addressed.

Int. J. Financial Stud. 2025, 13(3), 120; https://doi.org/10.3390/ijfs13030120

Submission received: 17 March 2025 / Revised: 24 June 2025 / Accepted: 27 June 2025 / Published: 1 July 2025

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Abstract

Exchange rate volatility poses significant challenges for emerging markets, influencing trade balances, inflation, and capital flows. South Africa’s Rand is particularly vulnerable to global risk sentiment, gold price fluctuations, and interest rate differentials, yet prior studies often analyse these factors in isolation. This study integrates them within an autoregressive distributed lag framework, using monthly data from 2005 to 2023 to capture both short-term fluctuations and long-term equilibrium effects. The findings confirm that higher global risk sentiment triggers immediate Rand depreciation, driven by capital outflows to safe-haven assets. Conversely, rising gold prices and favourable interest rate differentials stabilise the Rand, strengthening trade balances and attracting capital inflows. These results underscore the interconnected nature of global financial conditions and exchange rate movements. This study highlights the importance of economic diversification, foreign reserve accumulation, and proactive monetary policies in mitigating currency instability in emerging markets.

Keywords: exchange rates; global risk sentiment; gold prices; interest rate differentials; ARDL

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MDPI and ACS Style

Lefatsa, P.M.; Msomi, S.; Muguto, H.T.; Muguto, L.; Muzindutsi, P.-F. An Empirical Analysis of the Impact of Global Risk Sentiment, Gold Prices, and Interest Rate Differentials on Exchange Rate Dynamics in South Africa. Int. J. Financial Stud. 2025, 13, 120. https://doi.org/10.3390/ijfs13030120

AMA Style

Lefatsa PM, Msomi S, Muguto HT, Muguto L, Muzindutsi P-F. An Empirical Analysis of the Impact of Global Risk Sentiment, Gold Prices, and Interest Rate Differentials on Exchange Rate Dynamics in South Africa. International Journal of Financial Studies. 2025; 13(3):120. https://doi.org/10.3390/ijfs13030120

Chicago/Turabian Style

Lefatsa, Palesa Milliscent, Simiso Msomi, Hilary Tinotenda Muguto, Lorraine Muguto, and Paul-Francios Muzindutsi. 2025. "An Empirical Analysis of the Impact of Global Risk Sentiment, Gold Prices, and Interest Rate Differentials on Exchange Rate Dynamics in South Africa" International Journal of Financial Studies 13, no. 3: 120. https://doi.org/10.3390/ijfs13030120

APA Style

Lefatsa, P. M., Msomi, S., Muguto, H. T., Muguto, L., & Muzindutsi, P.-F. (2025). An Empirical Analysis of the Impact of Global Risk Sentiment, Gold Prices, and Interest Rate Differentials on Exchange Rate Dynamics in South Africa. International Journal of Financial Studies, 13(3), 120. https://doi.org/10.3390/ijfs13030120

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An Empirical Analysis of the Impact of Global Risk Sentiment, Gold Prices, and Interest Rate Differentials on Exchange Rate Dynamics in South Africa

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