Bias: Bearish-to-range-bound, as the AED is currently below the 90-day average and in the lower half of the 3-month range.
Key drivers:
• Rate gap: The Central Bank of the UAE is maintaining a steady base rate, while the South African Reserve Bank recently cut its key rate, widening the interest rate differential favoring the AED.
• Risk/commodities: Oil prices have been above their 3-month average, positively affecting the ZAR, which benefits from its commodity-linked economy.
• Economic outlook: Strong credit growth in the UAE reflects a robust economic environment, contrasting with South Africa’s more accommodative monetary policy aimed at recovery.
Range: The AED/ZAR is likely to hold within its recent range but may drift lower given the current pressures.
What could change it:
• Upside risk: A significant increase in oil prices could boost the ZAR and improve its competitiveness against the AED.
• Downside risk: Further interest rate cuts by the SARB could lead to increased ZAR weakness against the AED.
