USD/ZAR: Downside risks for the South African rand have eased – MUFG
|Downside risks for the South African rand have eased after the recent sell-off, argue analysts at MUFG Bank. The USD/ZAR is forecast to trade at 14.400 during the third quarter and at 14.900 by the second quarter of 2022.
Key Quotes:
“The rand has continued to underperform over the past month resulting in a reversal of strong gains against the US dollar from earlier in the year. The rand has been hit hard recently by the combination of negative domestic and external developments.”
“The social unrest has eased but fears remain that it could resurface. The negative impact on the economy from the rioting prompted the SARB to leave their GDP forecast unchanged at 4.2% for this year rather than upgrade.”
“The government has announced relief measures including reinstating a monthly welfare grant of ZAR350 for the poor until the end of March and support for uninsured businesses to help dampen downside risks for the economy. There have been encouraging signs recently that the third wave of COVID in South Africa has passed the peak allowing the government to begin easing restrictions. The riots have encouraged the SARB to be more cautious over tightening monetary policy. The SARB is now only forecasting one rather than two rate hike towards the end of this year. We expect higher commodity prices and yields on offer in South Africa to prevent a further sharp rand sell off.”
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