Search ForexCrunch

The sharp rally in USD/ZAR that has unfolded since the middle of last week has been consistent with the rand’s tendency to behave as a leveraged play on the global EM currency complex. Economists at Credit Suisse have raised short-term USD/ZAR target to 17.00, they do see a near-term two-way risk to USD/ZAR though. 

Key quotes

“One factor which could weigh on the rand is the reputation of August for being a bad month for the EM FX complex and specifically for the rand given its high-beta nature. Some investors may avoid or reduce rand exposures for this reason (although we are sceptical of its reliability).”

“We would consider an extension of the on-going rally in USDZAR to levels above 17.90 as unjustifiably extreme in the absence of strong new ‘fundamental’ negative rand-drivers.”

“We raise our short-term USD/ZAR target to 17.00. Our previous target of 15.90-16.00 now looks out of reach in the short-term. The reason that we keep our short-term forecast below current spot levels is that we find the recent days’ strength in the dollar unlikely to develop into a trend. We also think the rand’s previously-prevailing relationship with measures of broader risk sentiment, such as the S&P500 index, is likely to be restored.”

“We would be inclined to adopt a structural bullish USD/ZAR stance if fresh rand-negative catalysts were to emerge in the form of political complications or new reasons to be concerned about the country’s fiscal indebtedness outlook. Together with already-negative underlying investor-sentiment towards the rand, such developments could push USD/ZAR well above 18.00. But those developments are not in our base case scenario.”