The USD/ZAR will trade at 14.800 by the end of the year, analysts at MUGFK bank forecast. They consider the South African rand will lose some of its shine as 2021 progresses. They consider higher commodity prices are supporting a stronger rand.
Key Quotes:
“The rand has been one of the best performing emerging currencies since the US election. It has now largely reversed losses from late February and March when the initial negative COVID shock hit. After such strong gains in recent months, we have become more cautious over the scope for further sustained upside in the year ahead.”
“According to the IIF, the rand has become one of the most overvalued emerging market currencies thereby increasing the risk of a correction lower if the current favourable external environment is challenged. The rand has benefitted recently from building optimism over the outlook for a stronger and more sustained global economic recovery in 2021. At the same time, loose monetary policies from major central banks, which have boosted demand for higher yielding currencies such as the rand, are expected to be maintained.”
“The fundamental case for a stronger rand is backed up as well by the ongoing improvement in South Africa’s terms of trade which have been boosted by higher prices for precious metals and raw industrial commodities. However, we are concerned that long-term debt sustainability and persistently weak domestic growth could begin to undermine rand strength in the year ahead.”
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