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Global conditions look likely to remain benign enough in the near-term for the rand to maintain its recent gains against the USD. Therefore, analysts at Credit Suisse lower the USD/ZAR target to 14.30 from 15.00. However, deteriorating balance of payments dynamics and lingering fiscal risks suggest that USD/ZAR is not far from the bottom of a multi-month downward trend.  

Looking for a bottom in USD/ZAR

“We lower our USD/ZAR target to 14.30 from 15.00. Our previous target of 15.00 looks on the high side now, as the rand has become less sensitive to periodic upward moves in US real rates since the middle of March and while global equities remain supported. Below our new target of 14.30 we see a short-term support at 14.00 and then at 13.93 – which is the low point recorded in 2020.”

“The rand may perform substantially worse than we assume in our base case, if the global risk sentiment weakens substantially and/or if US real rates extend their week-to-date rise quickly above their late March high (-60bps for 10s reached in intraday trading on 30 March). In scenarios of that nature, USD/ZAR may rebound to the 14.70-15.00 area.”

“While we refrain from calling a bottom to USD/ZAR at current levels, the pair may soon stop falling on a trend basis even if the global environment remains favourable. The relationship between USD/ZAR and US equities, which is strong at present, is likely to weaken at some point if US equity prices continue to march higher.”