Analysts at Credit Suisse raise their short-term USD/ZAR target range to 14.40-14.95 (from 13.60-14.40 previously) after the rand has been hit by adverse South-Africa-specific developments this week. 

The main upside risk comes from the possibility of another round of dollar strength against EM currencies

“In the short run, the imprisonment of former president Zuma is likely to imply headline risk as well as real economic risk. Pro-Zuma protests may linger and become wide-spread enough to hurt retail sales and consumer confidence in a lasting manner. But over the longer-run, this development is likely to help president Ramaphosa consolidate his power within the ANC party. Therefore, it improves the chances for market-friendly reforms in the future.”

“We continue to think that covid developments in the country are unlikely to turn into a major hurdle for the rand or for South African assets in general.”

“We raise our short-term USD/ZAR target range to 14.40-14.95 (from 13.60- 14.40). The global landscape has changed into one in which investors are not rushing to sell the USD against EM currencies as they did in Q2. The top-end of our new range is set not far above the 200-day moving average – of around 14.85. Despite the underperformance of the rand so far this week there is still a substantial risk that this level will be broken.”

“We refrain from setting our new USD/ZAR forecast substantially higher from current levels after an already large underperformance of the rand and while the fiscal and the current account picture are generally supportive. The direction of the USD against the rest of the global currency complex matters more for USD/ZAR than local developments at this point. In other words, we expect the correlation between USDZAR and the BBDXY to remain high. A sustained rise in USD/ZAR to levels above our new range would likely require another sizable round of generalized USD appreciation.”


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