USD/ZAR: Rand to reverse some of its gains later in the year – MUFG

During February the South African rand appreciated against the US dollar  from 15.161 to 14.787, with global tailwinds still outweighing domestic risks. In the view of economists at MUFG Bank, the rand continues to look attractive and forecast USD/ZAR at 14.500 by the third quarter of the year though the pair could reverse back to 14.700 by year-end.

Key quotes

“Whilst US rates could add significant week-to-week volatility, our base case for strong global growth and rising commodity prices should be supportive of EM FX generally, and with broader commodities outperforming, the ZAR continues to be front of mind in benchmarking EM currencies against global reflation scenarios.” 

“Trade data suggests that South Africa’s current account balance has the potential to stay in surplus through 2021, and the South African Reserve Bank (SARB) now appears less-likely to undercut FX strength with a deep cutting cycle. Domestic growth, however, may remain challenged in the near-term, and, while the budget announcement did not deliver a major, negative near-term shock, neither is the fiscal outlook likely to be a major driver of ZAR strength over the short-term.” 

“On net, global tailwinds continue to argue for ZAR strength, though we will continue to monitor domestic developments closely, particularly in the back half of 2021.”