USD/ZAR: We advise investors to exercise caution – Commerzbank

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Analysts at Commerzbank, warn that the mood can change quickly regrading the South African Rand. They see the rating decision by Moody’s as a key event head. 

Key Quotes: 

“In his budget speech yesterday, the South African finance minister had to announce a further erosion of state finances. In addition, the highly indebted state-owned electricity supplier will receive cash injections for three years, while at the same time reorganisation will be pushed ahead. After initial scepticism, the markets reacted positively, and the Rand was quoted higher after the budget presentation. But rating agencies have yet to assess the situation.”

“The decisive factor is whether the rating agency Moody’s maintains its assessment for the sovereign rating. It is the only one of the three major agencies to still award investment grade.”

“The lack of success in consolidating public finances and reviving the economy has increased the risk of a rating downgrade. We therefore expect at least a deterioration in the rating outlook to negative, which will be followed by a renewed rating review after a few months.”

“We expect the rating decision scheduled for 29 March to weigh more heavily on the rand in the coming weeks.”

“In addition, in the course of the forthcoming elections, we expect to see sharper campaign rhetoric, which could fuel uncertainty about the political course. And last but not least, it should be remembered that the rand remains at the mercy of global risk sentiment. Recently, the rand has benefitted from a brightening risk mood due to positive news on trade negotiations between the USA and China. However, the mood can change quickly in view of the global risks. We therefore advise ZAR investors to exercise caution.”

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