USDZAR has bounced ~6% off the post-election lows, with the local currency once again lagging its EM peers on an intraday basis. The pair has rallied above a number of resistance points with relative ease during this month’s climb, most recently moving through the 200-DMA at 18.2858. A clear break would set sights on the 18.50 handle ahead of 18.6850, the Aug 5 high.
- Relentless greenback strength and concerns over Trump’s tariff policies have kept emerging market currencies on the backfoot globally. For the rand specifically, this has seen the currency’s YTD spot gains versus the greenback be almost completely erased, which in turn is likely to have contributed to expectations of tighter financial conditions in the coming months – as indicated by the narrowing spread between the 3-month JIBAR and 1x4 FRA.
- However, ZAR’s status as one of the most liquid proxies for EM has contributed to the higher beta for the currency, despite not being a specific target for Trump’s potential policy mix. This may mean that' ZAR stands to benefit on any sentiment-based recovery ahead, which potentially looks to China for a reversal trigger (see more on the PBoC’s latest measures to adopt a more activist approach to currency management here).
- Domestically, markets have so far looked through the positive structural backdrop in South Africa, with the coalition government expected to implement much-needed reforms to boost economic growth. Earlier today, Deputy Finance Minister Ashor Sarupen told lawmakers the 1.8% annual growth forecast over the next three years, driven by structural reforms, is “realistic and achievable”.
- Looking ahead, the SARB is expected to maintain its easing pace with a 25bp cut to the repo rate at next week’s policy meeting. Governor Kganyago said in September that the Committee “considered an unchanged stance, a 25bp cut, and a 50bp cut” before eventually opting for the middle path with unanimity. However, the fact that three distinct scenarios were put to discussion suggests that there may have been divergent individual views that could resurface at the final meeting of the year.
