USD/ZAR: USD rebound and correction lower for risk assets could lift the cross to 18.000 – MUFG

Analysts at MUFG Bank, hold onto the trade idea of a long USD/ZAR with a target at 18.400 and a stop loss at 17.100. They point out the correlation between the South African rand with the Turkish lira has eased amidst relatively stability for now. 

Key Quotes:

“Over the past week, the spot has moved against us amidst renewed USD weakness at the start of the week. The trade recommendation was initially set up as proxy for the TRY. However, the correlation between the two currencies has eased back again over the past week. It hasn’t helped our trade idea that the TRY has performed better than expected over the past week as well. Anticipation over President Erdogan’s “good news” announcement that Turkey has discovered 320 billion cubic meters of natural gas has provided some short-term support for the TRY even as the CBoT failed to significantly tighten policy.”

“While the gas discovery is good news in the medium to long-term for Turkey’s trade balance, overly loose monetary policy leaves the TRY vulnerable to further weakness in the near-term."

“A more broad-based USD rebound and correction lower for risk assets could be needed to lift USD/ZAR back towards the 18.000-level.”