USD/ZAR target range lowered again to 13.40-13.80 – Credit Suisse
|General USD weakness and a positive terms-of-trade shock will likely lead markets to continue to put aside rand-negative local. Consequently, economists at Credit Suisse have lowered their USD/ZAR target range to 13.40-13.80 (from 13.70-14.30).
The main upside risk is an adverse change in global market conditions
“We now lower our USD/ZAR target range again to 13.40-13.80. The longer the dollar prices for some of South Africa’s core exports hold around multi-year highs (e.g. platinum and iron ore) the more receptive markets are to price in the possibility of notable improvement in the outlook for South Africa’s dollar-GDP and the country’s fiscal balance, particularly as the government remains committed to prudent management of government spending.”
“Monetary policy does not seem to be a major hurdle for the downtrend in USD/ZAR. In its latest communication to markets, the central bank did not sound worried about the ongoing appreciation of the rand. The fact that inflation seems to have bottomed while the terms-of-trade have improved may be the main reason why the central bank seems relatively tolerant of currency appreciation.”
“The key risk for holders of short USD/ZAR positions at this point is a rand-negative change in global market conditions, possibly involving an increase in real rates in the US; a sharp decline in metal prices, or a combination of the two. In that case, USD/ZAR would likely spike again to levels above 14.00. The latter level might then turn into a new base as it did in the middle of May. A larger move towards the high in early May of 14.54 would probably require these forces to be substantial.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.