Bias: The outlook is range-bound, as the USD/XAF is near the 90-day average and remains in the middle of the 3-month range.
Key drivers:
- Rate gap: The Federal Reserve is expected to maintain a tight monetary stance, while the Bank of Central African States has just raised its policy rate to combat declining foreign reserves, which supports the CFA franc.
- Risk/commodities: Current oil prices remain above average, which is generally favorable for the XAF as it supports economic stability in the region.
- Geopolitical tensions: Heightened geopolitical issues, especially related to U.S. foreign policy, are adding volatility to the USD, impacting exchange rates.
Range: The USD/XAF is likely to hold steady within its recent range, with potential movement confined to small fluctuations rather than significant swings.
What could change it:
- Upside risk: A stronger-than-expected U.S. labor market report could boost the USD further.
- Downside risk: Any dovish comments from Federal Reserve officials may weaken the USD.