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Analysts at CIBC, forecast the USD/ZAR at 17.20 for the third quarter of the current year and at 17.00 by the fourth quarter. They argue the South African rand is also vulnerable to risk-appetite dynamics. 

Key Quotes: 

“Since the end of Q1, we have seen speculative investors increase ZAR positions in twelve of the fifteen positioning snapshots. Indeed, ZAR shorts ended Q1 at the most extreme position since January 2019. The rebuilding in ZAR holdings comes as foreign investors have returned to local bonds, with domestic real yields having reached levels not seen since 2004, the yield advantage continues to prove attractive to investors. However, that remains predicated upon risk appetite remaining constructive.”

“We remain troubled by the continued advance in local Covid cases. Total cases have more than doubled since the start of the month, and the national total is now headed towards 500k.”

“The lockdown has been extended until the end of September, and there are risks of growth downgrades, further weighing on the fiscal backdrop. In this context it is worth remember the warnings from Finance Minister Mboweni regarding the risks of a debt crisis in the next four years. The last month has seen positive risk appetite and yield dynamics overcoming challenging macro dynamics. But a reversal in the former will likely weigh on ZAR positioning and near-term momentum.”